What can personal loans be used for?
A personal loan is a type of installment loan that is repaid with interest over an extended period of time, usually one to seven years.
Personal loans can be used for a variety of purposes, such as:
- Debt consolidation
- Home remodeling
- Medical expenses
- Vacations
- Buying a car
Personal loan lenders feature different interest rates, fees and terms. You can typically get a personal loan from many different financial institutions, including banks, credit unions and online lenders. Loan amounts typically range from around $1,000 to $100,000, though each lender offers a different range.
Pros and cons of using a personal loan to buy a car
Personal loans can offer flexibility when financing a car, but they do come with some trade-offs. Here’s a look at the pros and cons of using a personal loan to buy a car:
Pros
- Can cover a down payment
- No collateral needed for unsecured loans
- High loan limit potential
- Flexible usage
Cons
- Might not cover the full cost of the car
- Typically higher interest rates than auto loans
How to get a personal loan to buy a car
To get a personal loan to buy a car, take the following steps:
1. Set your budget and check your credit
Figure out how much you can afford to borrow, including interest and any fees, so that the monthly payment fits comfortably into your finances. You should also check your credit report and credit score to see what types of loans and rates you might qualify for.
2. Choose your car
Shop around to narrow down your options. This helps you estimate how much you’ll need to borrow.
3. Compare lenders
Consider personal loans from banks, credit unions or online lenders. Compare lenders’ interest rates, loan terms and fees. This is also a good time to get prequalified to see what types of offers might be available to you.
4. Apply for a personal loan
You can typically apply for a personal loan online, and you’ll usually get a decision right away. If you’re approved, the funds are typically transferred to your bank account within a few business days, though it might take longer depending on the institution. Once the money is in your account, you’re ready to purchase a car, whether that’s at a dealership or with a private seller.
Personal loans vs. auto loans
An auto loan is similar to a personal loan in that you’ll receive a lump sum upfront that you pay off in installments over a set term. However, there are some differences between the two.
| Factor | Personal loan | Auto loan |
|---|---|---|
| Purpose | Used for a variety of purposes | Only for auto purchases |
| Interest rates | Typically higher interest rates | Typically lower interest rates |
| Down payment | Not typically required | Typically required |
| Term | Typically 1 to 7 years | Typically 2 to 7 years |
| Collateral | Not needed for unsecured loans | Vehicle serves as collateral |
| Amount you can borrow | Typically $1,000 to $100,000, depending on the lender and borrower profile | Typically the cost of the car |
A personal loan is generally an unsecured loan, which means you don’t need collateral to receive funds. Auto loans are typically secured loans that use the vehicle as collateral. Should you fail to repay the loan, your lender can seize your vehicle for repayment.
Also, auto loans tend to have lower interest rates than personal loans since auto loans are secured loans. Annual percentage rates (APRs) on personal loans typically range from around 6% to 35%, while auto loan rates usually range from around 4% to 30% APR.
» MORE: Secured vs. Unsecured Loans
When to use a personal loan instead of an auto loan
An auto loan can offer lower interest rates and a longer term for repayment, but there are some situations when choosing a personal loan for a car purchase might be a good idea.
- You can’t qualify for an auto loan. If you have bad credit or no credit history, you might have trouble qualifying for conventional financing. In that case, a secured personal loan might work, if you have an asset to use as collateral for it.
- You’re buying from a private seller. Not all lenders will finance a private sale, so a personal loan might be your only option.
- You’re buying an older car. Some lenders might not want to finance a vehicle that’s too old or has too many miles on it.
- You receive a better personal loan rate. While auto loans typically have lower rates than personal loans, it’s possible you might get a better rate with a personal loan.
FAQ
Does a personal loan for a car affect your credit score?
Yes, getting a personal loan can affect your credit score because the lender will perform a hard credit check before deciding whether or not to approve a loan. A hard inquiry will cause a small dip in your credit score, but it won’t affect your score long term.
What credit score do you need to get a personal loan for a car?
Most unsecured personal loans require a good credit score or better, or a FICO score of 670 to 850. For secured personal loans, you might be able to qualify with a fair credit score, bad credit score or no credit score, but you’ll need collateral for the loan.
Can I use a personal loan to buy a car from a dealership?
You can use a personal loan to buy a car from a dealership or from any other auto seller, even a private seller. Once you’re approved for a personal loan, a lender will deposit the funds in your bank account, which you can then use to purchase a car at a dealership.
Can personal loans cover the full cost of a car?
A personal loan can cover the full cost of a car, depending on how much the car is and the loan amount that you qualify for. It’s usually best to get prequalified with several different lenders to see what types of terms, loan amounts and rates you might qualify for before you apply for a loan. This can give you a better idea of whether a personal loan might cover the full cost of a car you’re interested in.
What happens if your personal loan amount is more than the car price?
If you’re approved for a personal loan that costs more than a car, you can typically use the remaining funds for whatever you want to, as long as it’s for an approved purpose. Generally, personal loans can’t be used for education expenses, business expenses, real estate or investments. You’ll still need to pay the full loan amount back according to the payment schedule that’s outlined in your agreement.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Kelley Blue Book, “Average New Car Price Flirts With $50,000.” Accessed Dec. 30, 2025.
- Kelley Blue Book, “Average Used Car Price Drops.” Accessed Dec. 30, 2025.
