Cars are expensive, and if you’re shopping for one, you may be curious to know if you can use a personal loan to finance that purchase. While the answer is technically yes, there are some good reasons to choose an auto loan instead, such as a lower annual percentage rate (APR) and higher loan amounts. But for some cars, a traditional auto loan isn't an option — say on a classic car or one older than 10 years. In these cases, a personal loan might give you the means to get the wheels you need (or want).
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Can I use a personal loan to buy a car?
While a personal loan can be used to finance a car, it’s not common and isn’t usually the best option for most late-model vehicles. Auto loans have specific features that make them a better choice for purchasing a car.
Personal loans have higher APRs on average, meaning your monthly payments are likely to be higher. Also, as personal loans are generally unsecured and based on your credit profile, it may be difficult to qualify for the total amount you need — the average price of a new car was more than $48,000 in June 2023, according to Kelley Blue Book.
Auto loans are usually secured by the car you're purchasing, meaning the lender can repossess your car if you default on the loan. While that makes it very important to keep up with your payments, it also lowers the risk to the lender and means that auto loans on average offer lower rates than personal loans and higher loan amounts.
When should I use a personal loan to buy a car?
Sometimes a traditional auto loan isn't available to meet your car-buying needs. There are several scenarios where it might make sense to use a personal loan to buy a car instead.
- Buying from a private seller: If you're buying a car from a private seller, it may be best to use a personal loan if you don't have the cash on hand to make the purchase, especially since most banks or credit unions may not offer the option of a private-party auto loan.
- A classic car: Most traditional auto loans are for cars less than 10 years old, so if you're buying an older car, you may want to consider a personal loan. However, some lenders (such as LightStream) may offer classic car financing that is more specific to your purchase.
- A restoration project: Instead of buying a new or used car, you may be looking for a personal loan to fund your restoration project of an older car. Some banks and credit unions offer restoration loans, similar to classic car financing.
- You don't want to make a down payment: Most dealerships expect a down payment on your car. A good rule of thumb is at least 20% for new cars, and 10% for used, according to Progressive. So if you want to avoid that cost, a personal loan may be a better option.
- You have a low credit score: If you have poor credit, you may not qualify for an auto loan. However, it's not guaranteed that you'll qualify for a personal loan either. Some lenders specialize in lending to those with low credit scores, but your APR will likely be higher, making the cost of the loan more expensive. It's best to improve your credit before using a personal loan to buy a car.
Check Out: Secured vs. Unsecured Personal Loans
Personal loans vs. auto loans
A personal loan gives you a lump sum upfront, allowing you to spend it however you like, within the parameters set by the lender. Auto loans are more similar in many ways to mortgages than personal loans:
- Down payments are sometimes required and can help you lower the cost of the loan overall.
- The loan is secured by the vehicle you’re purchasing.
- You’ll need to insure the car over the life of the loan.
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| $600 to $100,000 or more, depending on the lender | Up to $150,000 or more, depending on the lender |
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Average interest rate (taken from February 2024 Federal Reserve data) | | |
| Common uses include large purchases, unexpected expenses, debt consolidation | |
| A FICO score of 670 or higher will make you more likely to receive favorable terms, but lower scores are accepted by some lenders | No standard minimum, though lower scores will usually be charged higher rates |
| Government ID, proof of income | Car insurance, government ID, proof of income |
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Advertiser DisclosureOverview
Lightstream is one of three Credible partner lenders to offer loan amounts up to $100,000, which makes it ideal for financing large expenses like home improvements or weddings. Funds are available as soon as the same day you apply, and you'll have up to 12 years to repay certain types of loans, including home improvement loans, RV loans, and boat loans. There are no origination fees, and rates are low — Lightstream's lowest APR beats SoFi's advertised lowest APR by 1 percentage point. But you'll need good credit to qualify.
Unlike most lenders, Lightstream does not let you prequalify on its site. Nor does it provide a contact phone number next to its customer service hours on its website.
Repayment terms
2 - 12 years, depending on loan purpose
Eligibility
Available in all states except RI and VT
Time to get funds
As soon as the next business day
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
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Upstart has one of the lowest available APRs of Credible partner lenders and of all non-partners we reviewed, making it a good choice for well-qualified applicants. However, it's also is one of few lenders that doesn't have a minimum credit score requirement (if you apply on the lender's website), which makes it an option if you have bad credit or no credit history. Upstart may charge an origination fee as high as 12%, but good-credit borrowers may not be charged one at all.
Trustpilot gives Upstart 4.9 stars, which is the highest of all lenders we reviewed.
Time to get funds
As soon as 1 to 3 business days
Loan uses
Pay off credit cards, consolidate debt, relocate, make a large purchase, and other purposes
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Discover Personal Loans offers low APRs, repayment terms up to seven years, no origination fees, nationwide availability, and doesn't require your Social Security number to prequalify on its site. You'll need to have an annual income of at least $40,000, and a FICO score 660 or higher, to be eligible. If your credit score is fair or poor, you'll need to go elsewhere, as Discover doesn't allow cosigners.
Funds are available as soon as the next business day after loan approval.
Eligibility
Available in all 50 states
Time to get funds
Funds can be sent as soon as the next business day after acceptance
Loan uses
Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding
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PenFed is a credit union that offers personal loans to applicants with good credit. Though you'll need to become a member to receive a loan, membership is open to everyone. PenFed shines with no origination fees, small available loan amounts, and low interest rates. If you don't have a FICO score above 700, you may not qualify on your own, but can apply with a cosigner with good credit — which is not something most lenders offer.
PenFed doesn't have a minimum income amount, and offers live chat and an entirely online loan application process.
Fees
Unsuccessful payment fee, late fee
Time to get funds
Typically 1 to 2 business days after verification
Loan uses
Debt consolidation, home improvement, credit card refinancing
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Upgrade has a suite of features that make it a very attractive lender: competitive interest rates, discounts for direct pay and autopay, as soon as same-day funding, up to seven-year repayment terms, and nationwide availability. Plus, loans are available to fair-credit borrowers, and you don't need to input your Social Security number to prequalify on the website. Upgrade even offers secured personal loans, which is not common among lenders.
However, Upgrade does charge an origination fee of 1.85% to 9.99%. You must have a FICO score of at least 600 and a minimum income of $25,000 annually to qualify.
Loan amount
$1,000 to $50,000 ($3,005 minimum in GA; $6,600 minimum in MA)
Loan uses
Credit card refinancing, debt consolidation, home improvement, major purchase, other
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LendingClub is a solid lender for good credit borrowers and some fair credit borrowers that apply directly on its website. It's easy to prequalify with LendingClub, especially if you're uncomfortable providing your Social Security number, as the company doesn't require it at the prequalification stage. (You will need to provide it if you move forward with a full application.)
While prequalification is not a guarantee that you'll be approved for a loan, LendingClub does a better job than most other Credible partner lenders at approving applicants that have successfully prequalified. In other words, you're less likely to have your application declined once you apply (if you've already prequalified). LendingClub may charge an origination fee between 3% and 8%.
Eligibility
Available in all 50 states
Loan uses
Debt consolidation, paying off credit cards
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SoFi stands out for offering no-fee personal loans with competitive rates, high loan amounts, long loan terms, discounts for autopay and direct pay, and funding as soon as the same day. Plus, SoFi prioritizes convenience for existing and potential customers with features like live chat and an easy prequalification process that doesn't require your Social Security number.
The main catch is that you need to qualify for a loan with SoFi, which can be hard to do if you don't have good credit. You also won't be able to apply with a cosigner, since SoFi doesn't accept cosigners; nor does it offer secured personal loans.
Fees
Option to pay an origination fee (up to 6%) in exchange for a lower rate
Time to get funds
Typically within a few days, given approval and bank account verification, but sometimes within the same day
Loan uses
Solely for personal, family, or household uses
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Best Egg is a solid lender for a wide range of borrowers and, notably, scored second for personal loan satisfaction in J.D. Power's Consumer Lending Study. It offers competitive rates, reasonable loan terms and amounts, and personal loans for fair credit. You'll need a FICO score of at least 600 to qualify, but the lower your score, the higher your APR may be. The APR includes the interest rate and origination fees, which range from 0.99% to 8.99% with Best Egg.
Note that if you successfully prequalify with Best Egg, you may be more likely to be approved for the loan relative to other lenders you prequalify with. Based on Credible data, borrowers who chose to apply for a loan with Best Egg were more than twice as likely to be approved (relative to most other Credible partners).
Fees
Origination fee, late fee, unsuccessful payment fee, check processing fee
Eligibility
Available in all states except DC, IA, VT, and WV
Time to get funds
As soon as 1 to 3 business days after successful verification
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
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Avant personal loans are a good choice for borrowers with bad credit looking for small- to moderate-sized personal loans. Loans are available up to $35,000 and you could get the money as soon as the next business day after approval. Plus, Avant is more likely than some lenders to approve the applications of borrowers who've prequalified with Avant. However, the lender charges an origination fee up to 9.99%, and its top-range interest rates are among the highest of the lenders we reviewed.
Fees
Origination fee, late fee, dishonored payment fee
Eligibility
Available in all states except HI, IA, MA, ME, NY, VT, and WV
Time to get funds
As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
Loan uses
Debt consolidation, emergency expense, life event, home improvement, and other purposes
Repayment terms
1 to 5 years (2 to 5 years through Credible)
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It’s worth considering a personal loan through Splash if you have good credit (ideally, a FICO score above 700). The platform offers loans from a wide range of lenders, and next-day funding is available. Plus, Splash has a live chat feature so you can get real-time answers without having to wait on hold or for an email. Loans are available up to $100,000 if you apply via Splash’s website.
Rates are competitive, but borrowers with excellent credit may find lower APRs elsewhere. If you need a repayment term longer than five years, you’ll need to look elsewhere as well.
Loan amount
$5,000 - $100,000 (up to $35,000 on Credible)
Eligibility
Available in all states except VT. OH and NM net disbursed amount must be greater than $5,000. MA must be greater than $6,000
Time to get funds
Same day available, typically 1-3 days
Loan uses
Debt consolidation, home improvement, medical expenses, major purchases
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Universal Credit is one of a handful of lenders that offers personal loans for bad credit. If your FICO credit score is at least 560, you may be eligible for a Universal Credit personal loan. It offers loan amounts up to $50,000, repayment terms up to seven years, and discounts for direct pay and autopay. Funds are available as soon as the next business day after loan approval.
Note that rates and fees can be relatively high — you may pay an origination fee from 5.25% to 9.99%, and APRs start at 11.69%. If you get a loan with a high interest rate, consider refinancing your personal loan at a lower rate once you've improved your credit score.
Eligibility
A U.S. citizen or permanent resident; not available in DC, IA, SC, WV
Time to get funds
As soon as 1 business day after acceptance
Loan uses
Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
Read full reviewOverview
Happy Money has been in operation since 2009 (formerly known as Payoff). It's an option for fair-credit borrowers (plus those with better credit), and notably has a relatively low top-end APR. In other words, you could qualify for a lower rate with Happy Money with fair credit, relative to other lenders that offer fair-credit loans. The company does charge an origination fee on some loans, up to 5%, but that's not as high as some other lenders' origination fees.
You should be prepared to wait a few days to get your money, as funding can take three to five days once approved. And loans aren't available in Massachusetts or Nevada. Happy Money has an A+ rating with the BBB and is ideal for debt consolidation and credit card consolidation loans.
Eligibility
Available in all states except MA, MS, NV, and OH
Time to get funds
As soon as 2 - 5 business days after verification
Loan uses
Debt consolidation and credit card consolidation only
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BHG Money stands out for offering the largest loan amounts — up to $200,000 — of any Credible partner lenders. Simply put, if you need an unsecured personal loan over $100,000, there are very few places to look, but BHG is one. You'll have up to 10 years to repay the loan, but you'll need an annual income of at least $100,000 to qualify and a FICO score that's 660 or higher. However, if you have a cosigner that meets these requirements, BHG will consider your application.
Loan amounts start at $20,000, so look elsewhere for small loans. And BHG charges a modest origination fee between 2% and 4%, depending on your financial profile. Loan funds are available within three to 14 days of loan approval. Note that you can't prequalify with BHG.
Fees
Origination fees, late fees
Eligibility
Available in all states except Maryland and Illinois
Loan uses
Debt consolidation, baby (adoption), engagement ring financing, moving (relocation), business, home improvement, special occasion, cosmetic procedures, major purchase, taxes, credit card refinancing, medical expenses, vacation, wedding, other
Read full reviewFees
Origination Fee, $15 Late Fee, $25 NSF Fee
Eligibility
Available in all states except CO, CT, ME, NV, NH, TN, VT, WV, WY, and all U.S. Territories
Time to get funds
Funds typically deposited into your account in 1 business day13
Loan uses
Debt consolidation, credit card refinancing
Read full reviewOverview
OneMain Financial has multiple options for bad-credit personal loans. There is no minimum credit score required (if you apply directly with OneMain), which means you could get a loan with bad credit (FICO below 580). Plus, cosigners are allowed — a cosigner is someone (ideally, with good credit) who promises to repay the loan if you can't, which can make it easier to qualify or lower your rate. And, secured personal loans are available. You secure a loan with collateral, which may also help you qualify or lower your rate.
Rates are higher than competitors and OneMain charges origination fees as either a flat fee up to $500, or a percentage from 1% to 10% (depending on your state of residence). Note that even if you prequalify for a personal loan with OneMain, getting approved isn't a given.
Fees
Origination fee, unsuccessful payment fee, late fee
Eligibility
Must have photo I.D. issued by U.S. federal, state or local government
Time to get funds
As soon as 1 to 2 days after acceptance
Loan use
All except business, and education
Read full reviewPros and cons of using a personal loan to buy a car
While auto loans are usually the better option for a car purchase, personal loans have some benefits as well.
Pros
- More flexible: Auto loan funds come earmarked specifically for the car you want to purchase, while personal loans can be used for nearly anything. If you want to buy a used car for $25,000 and make some repairs to your home for $10,000, you could theoretically take out a personal loan for $35,000 and do both.
- Not secured: Auto loans are secured by the car itself, meaning that if you don’t make your car payments, the lender may repossess your car. Personal loans are generally not secured, so if you find yourself unable to make your payments, the only damage is likely to be to your credit score.
- No down payment needed: While not all auto loans require a down payment, many do. If you don’t have that cash on hand, a personal loan can help you avoid that step.
- Comprehensive coverage not required: Unlike a traditional auto loan, you may not be required to carry comprehensive coverage if you use a personal loan to buy a car.
Cons
- Higher interest rates: On average, personal loans have higher interest rates than auto loans. That makes sense when you consider that personal loans are usually not secured, which makes them riskier for lenders, while auto lenders may be able to recoup their losses by repossessing your car. But higher interest rates usually mean that you’re spending more to borrow the same amount.
- May have higher monthly payments: Because personal loans often have shorter terms than auto loans, the monthly payments can be higher. Make sure you’re able to comfortably afford the monthly payment for the life of the loan.
- May not qualify for a large enough amount: Another consequence of not being secured, large personal loans may be difficult to qualify for if you don’t have an excellent credit score.
See Also: How To Get Approved for a Personal Loan
Tips for choosing the right personal loan to buy a car
If you’ve decided that a personal loan is the best option for financing your vehicle, here are some things to keep in mind when shopping for a lender:
- APRs: The annual percentage rate (APR) indicates the total cost of your loan, so take your time to research different lenders and rate-shop. A 48-month loan of $50,000 with a 10% APR will cost you about $10,870 in interest over the life of the loan — the same loan with a slightly higher APR of 14% will cost you about $15,584. You can save hundreds, if not thousands, of dollars just by shopping for lower interest rates.
- Fees: Many personal loans charge origination fees, a percentage of your loan that is often taken out before you receive the money. Lenders may charge other fees as well. Carefully review the terms of any loan and make sure you’re factoring the fees into the total cost of the loan.
- Repayment terms: The repayment term is how many months you will be repaying the loan. Usually, the longer the term of your loan, the higher the total cost. On the other hand, shorter terms usually come with higher monthly payments, which can be difficult to afford. It’s generally best to choose the shortest term you can afford to save money on interest.
- Credit score requirements: Since most personal loans are unsecured, your credit score is a huge determinant of how much money you’re allowed to borrow and how competitive of an interest rate you’re offered. It may be worthwhile to take some time before buying a car to improve your credit score — it could save you money.
- Cosigner option: A cosigner is someone with a better credit score and history than the borrower, who will take on shared responsibility for the loan. A cosigner doesn’t share the ownership of the car or split the proceeds of the loan with the borrower — they just take on the risk of the loan and agree to cover the payments if the primary borrower can’t. If you have a friend or family member who will cosign a loan for you, it may help you qualify for a better interest rate, but not all lenders offer cosigner options.
How to apply for a personal loan to buy a car
Here’s how to apply for a personal loan:
- Check your credit score: Since a credit score is so crucial to getting a low APR, make sure your credit score will qualify you for the best rates out there. Pull your credit report and see if there are any errors to dispute.
- Prequalify with multiple lenders: Prequalification is a relatively quick process that gives you a sense of rate and loan terms you could qualify for. Prequalification requires a soft credit pull and won’t ding your credit, but it's not an offer of credit. The final rate you get could differ.
- Compare terms: Once you’ve prequalified with multiple lenders, compare APRs and loan terms. Note which have origination fees.
- Finalize your application: Once you’ve decided which loan is right for you, finish your application. You can expect to provide a government ID, proof of income, and other documentation. This will trigger a hard credit inquiry, which will likely ding your credit score temporarily. Read the fine print before you finalize the paperwork.
- Prepare for repayment: Once your funds are disbursed, you can purchase your car. But don't forget to note when the first payment is due. Consider setting up auto payments or calendar reminders to help prevent missing a payment.
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Personal loans to buy a car FAQ
Can I use a personal loan to buy a car with bad credit?
You can, but it’s likely a costly option. Since personal loan interest rates and other terms are usually determined by your credit history, a low credit score likely means your personal loan will come with a high cost of borrowing. See if you can qualify for an auto loan with a more competitive rate first.
When would it make sense to use a personal loan to buy a car?
There are several reasons to use a personal loan to buy a car, such as avoiding a down payment, buying from a private seller, restoring an old car, or financing a classic car. Additionally, if you have a lower credit score, you may not qualify for an auto loan, so you may want to turn to a bad-credit personal loan instead. However, you will likely face higher APRs.
How does my credit score impact my eligibility for personal loans to buy a car?
Your credit score is one of the factors lenders use to determine how risky of a borrower they think you are — that is, how likely they believe you are to repay them. If you have a low credit score, the lender might charge you a higher APR to make the loan worth their while. On the other hand, if you have a high credit score, lenders will often offer lower APRs to tempt you to borrow from them. In short, a low credit score often means a higher cost of borrowing — and too low of a score may mean no one will lend to you at all.
Meet the expert:
Hilary Collins
Hilary Collins is a finance writer and editor. She loves taking topics that could be dry and complicated and turning them into engaging stories with actionable takeaways.