Comparison of personal loans and auto loans
Both personal loans and auto loans can be used to finance the purchase of a car. Both can also have fast approval times, with some lenders offering same-day or next-day funding. Generally, borrowers with a credit score of 670 or higher, a steady income and little existing debt are more likely to get the best rates on both types of loans.
However, it’s worth noting that auto loans typically have better annual percentage rates (APRs) than personal loans, in part because they’re secured by the car you're purchasing. For instance, the average rate for a 60-month new car loan from a commercial bank was 7.22% in the fourth quarter of 2025, according to the Federal Reserve’s G.19 release, which reports on consumer credit. In comparison, the average rate for a 24-month personal loan was 11.65% in the fourth quarter of 2025.
The table below compares some factors related to personal loans and auto loans.
| Factor | Personal loan | Auto loan |
|---|---|---|
| Purpose | Almost any purpose | Financing a car only |
| Loan amount | $1,000 to $100,000 | $5,000 to $100,000 |
| Term options | 1 to 7 years | 2 to 7 years |
| APR | Typically 6% to 36% | Typically 4% to 30% |
| Down payment required | No | Yes |
| Collateral | Not typically required | The car |
| Approval timeline | 1 to 7 days | 1 to 7 days |
| Availability | Banks, credit unions and online lenders | Car dealerships, banks, credit unions and online lenders |
When it comes to picking an auto loan or personal loan to buy a car, there isn’t necessarily a correct choice. Take the time to consider and research both options to see which one may be the best fit for you.
What to know about personal loans
Personal loans can be used for many purposes, like vacations, home improvement projects, consolidating debt, medical bills and more. When you’re approved for a personal loan, the funds come from a lending institution in a lump sum, with the expectation that you’ll pay it back via set payments over a set amount of time.
Personal loans are usually unsecured loans, meaning they don’t require collateral like a car or house. Terms typically range from one to seven years, and loan amounts typically range from $1,000 to $100,000. Credit score requirements generally vary by lender, though good credit or better is typically required.
» COMPARE: Best personal loan companies
Pros and cons of personal loans
If you’re considering buying a car using a personal loan, consider the pros and cons before you fill out an application.
Pros
- Typically quick approval
- No collateral required
- No down payment
Cons
- Good credit typically required
- Usually higher APRs than auto loans
What to know about auto loans
Car loans are only used to finance vehicles. These loans are secured loans that use the car as collateral. Since the vehicle can be repossessed if you stop making payments, there is less risk for lenders if you default on the loan.
Auto loans are the most common way for someone to purchase a car, given their flexible terms and lack of credit score restrictions. Car loans generally range from $5,000 to $100,000, and terms typically range from two to seven years. You don’t necessarily need a good credit score to get an auto loan, but you’ll qualify for better terms and rates with a good score or better.
Also, note that some auto dealerships may offer unique financing options, but it’s best to be wary of this option.
“Incentives and promotions in the auto industry, such as 0% APR financing or cash rebates, can make auto loans more appealing,” said Michelle Delker, a certified public accountant (CPA) and founder of The William Stanley Group, a tax advisory firm. “However, prospective borrowers should meticulously consider the overall financial effect of specials before making a choice.”
» COMPARE: Best car loan companies
Pros and cons of auto loans
Before opting for an auto loan, compare the pros and cons:
Pros
- Usually lower interest rates
- Flexible credit requirements
- Flexible terms and financing options
Cons
- Down payment required
- Car can be repossessed if you default
- High dealership markups
When to use a personal loan vs. auto loan
There are some types of situations that make one type of loan more appealing than the other.
Who should get a personal loan?
A personal loan can work well for someone who has a good credit score but who doesn't have a down payment saved up for a car. It may also be suitable if you want to buy a car under $5,000 or a car that’s too old to qualify for an auto loan.
Who should get an auto loan?
An auto loan might work well for someone who has a lower credit score. It can also work well for someone who has enough money saved for a down payment, or someone who is looking for better financing rates or terms.
FAQ
What are the eligibility requirements for personal and auto loans?
The eligibility requirements for personal and auto loans will vary from lender to lender. For personal loans, lenders usually require a good to excellent credit score and a specific debt-to-income (DTI) ratio. For auto loans, lenders may accept credit scores in the fair or poor range.
Is it easier to get a personal loan or an auto loan?
It’s generally easier to get an auto loan than it is to get a personal loan. Auto loans are secured loans, so lenders will generally accept borrowers with lower credit scores, making them easier to obtain.
What is the best way to pay for a car?
The best way to pay for a car is with cash, without taking out any kind of loan, because you’ll avoid paying interest. But if you don’t have enough money to pay for your car outright, an auto loan is usually the next best option given that it will likely have a lower interest rate than a personal loan.
What expenses should I budget for when buying a car?
When you buy a car, you’ll also have to pay for sales tax, registration, document fees, title fees, emissions inspections and dealer fees, depending on what state you buy your car in. Keep these expenses in mind as you create your car budget.
Bottom line
Both personal loans and auto loans can be good options for purchasing a car. Unsecured personal loans can offer flexibility and immediate ownership, but they usually have higher interest rates. In comparison, auto loans are secured by the car, tend to have lower interest rates and are usually more accessible to buyers with lower credit scores.
Generally, the decision comes down to your credit profile, financial priorities and risk tolerance. Evaluate your financial standing and needs, and choose the loan that aligns best with your situation.
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:
- Federal Reserve, “Consumer Credit - G.19, Terms of Credit at Commercial Banks and Finance Companies.” Accessed Feb. 4, 2026.
