Credible takeaways
- Older cars may not qualify for a traditional auto loan.
- Auto loans often have lower APRs and more flexible eligibility requirements than personal loans.
- Personal loans don’t require a down payment.
Getting a new car can be exciting, but it can also be expensive. In January 2024, new cars cost an average of $47,401, according to Kelley Blue Book, compared to an average of $25,328 for used cars.
How you choose to finance your car purchase can have long-lasting financial implications, so it’s important to choose your car and car loan wisely. In most cases, you’ll want to use a traditional auto loan. But sometimes, you may not be able to. We’ll take a closer look at how these two loan types stack up and which is best to fund your new ride.
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How auto loans and personal loans compare
Here’s an overview of the key differences between the two. Average loan terms are from Experian’s 2023 report on the automotive finance market.
| | |
|---|
| 12.35% for a two-year term | 8.15% for a five-year term |
| Generally up to $50,000, but some lenders offer loan amounts up to $200,000 | Based on the MSRP of the vehicle plus costs like tax, license, and documentation and recording fees |
| 1 to 7 years with most lenders | 62 to 72 months, on average |
| | |
| | Typically 10% to 20%, but can vary |
What is an auto loan?
An auto loan is a secured installment loan that’s used to finance a vehicle. Auto loans involve a lump sum that’s disbursed upfront, usually to the dealer, and repaid over a set term, with interest, through a series of installment payments. Unlike a personal loan, you can only use an auto loan to purchase a car, and you won’t get the funds directly.
The maximum loan amount is often based on the cost of a new car or the Kelley Blue Book value of a used car, plus taxes and other administrative fees. Auto loans tend to have lower APRs than personal loans, which makes them a better option than personal loans in most cases. However, they typically require a down payment of 10% to 20%.
Important
Most lenders require vehicles be 10 years old or newer. They also may not finance a car that has high mileage, a salvage title, or is considered a project car. If you’re looking for such a vehicle, a traditional auto loan may not be an option.
What is a personal loan?
A personal loan is a type of installment loan that provides a lump sum upfront that you can use for a wide range of expenses — including buying a car. After you receive the funds, you’re required to repay the amount, plus interest, through a series of payments over a set term. In some cases, lenders also charge an upfront fee, an origination fee, which can be 1% to 12% of the loan. This is typically deducted from the funds before you receive them.
While personal loans tend to have lower annual percentage rates (APR) than credit cards, on average, they typically have higher rates than secured auto loans. The average APR for a 24-month personal loan was 12.49% in February 2024, while the average APR for a 60-month auto loan was 8.22%, according to the Federal Reserve.
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Personal loans to buy a car
The following lenders allow the use of a personal loan to purchase a vehicle.
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
Overview
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
Overview
Zable offers relatively small loan amounts — ranging from $1,000 to $25,000 — that can be deposited in your account as soon as the same day you are approved, if it is by the lender's deadline. It’s an option for fair-credit borrowers, with a minimum credit score of 600, as well as those with lower incomes.
Its origination fees range from 5% to 9%, however, and it does not offer discounts, secured loans, nor the option to add a cosigner to your application. Zable also currently does not offer loans in 21 states.
Fees
Origination fees (5% to 9%)
Eligibility
Not available in CO, CT, IN, KS, LA, ME, ND, NE, NH, NJ, NV, OK, OR, PA, RI, SC, SD, VT, WV, WI, or WY
Loan uses
Debt consolidation, credit card refinancing, home improvement, major purchase, car financing
Overview
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
Can you buy a car with a personal loan?
Since personal loans are usually unsecured, there is no appraisal or other valuation (like Kelley Blue Book) that’s required to get the loan. For this reason, they can be a good option for a car that doesn’t qualify for regular auto financing, like one that’s too old, has too many miles on it, or has a salvage title. They may also be a good choice if you want to buy a car to fix up, since a personal loan can provide the purchase price and then some for needed repairs or reconditioning.
You may have a harder time qualifying for a personal loan with fair or bad credit, however, since there’s typically no collateral as a safety net for the lender.
Check Out: How Do Personal Loans Work?
Note
The APR more accurately represents the total cost of borrowing than the interest rate alone, as it also includes any upfront fees. You’ll want to consider the APR when looking at both personal loans and auto loans.
Secured loans vs. unsecured loans
Secured loans require the borrower to pledge an asset as collateral. For example, auto loans require you to pledge the car being financed. As a result, if a borrower defaults on a secured loan, the lender has direct recourse — it can seize and sell the asset to help recover its investment.
On the other hand, unsecured loans don’t require any collateral. If you qualify and are approved, you can borrow funds without putting any assets on the line. This also means unsecured loans typically have higher APRs, however, because the rate you get is based in part on your credit profile.
So, if a borrower uses a personal loan to buy a vehicle and defaults, the lender can’t seize the vehicle. The lender can, however, report the default to the credit bureaus, attempt to collect the debt, sell the debt to a collections agency, and/or sue the borrower.
Learn More: Secured vs. Unsecured Personal Loans
Auto loan vs. personal loan example
Let’s say you want to buy a $30,000 car with a loan and pay it back over five years. If you’re approved for both a personal loan and a traditional auto loan, consider how the costs stack up. The key difference between both loans is the APR and the down payment.
- A 16% APR for a $30,000 personal loan would result in a $730 monthly payment, and $13,773 paid in interest. There are no down payments on personal loans.
- A $27,000 auto loan (after a $3,000 down payment) with a 6% APR would have a $522 monthly payment and result in $4,319 in interest.
The personal loan costs more than the auto loan, even after you account for the required down payment.
Note
If you don’t have cash on hand for the down payment, you could potentially use a credit card or personal loan to finance it. But not all car dealerships or lenders allow this.
Compare personal loan rates
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
Overview
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
Overview
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
Overview
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
Overview
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
Overview
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
Overview
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
Overview
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
Overview
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)
Overview
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
Overview
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
Overview
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
Overview
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
Fees
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
Overview
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
How to get an auto loan
If you want to get an auto loan, there are a few places you can turn, including:
- Indirect lenders: Indirect lenders are car dealers that arrange financing for you, often through their networks of lenders. You can usually find a local dealership in your area.
- Direct lenders: Direct lenders are banks, credit unions, and alternative lenders that offer you direct financing for a car. LightStream, a Credible partner, is an example of a direct lender.
- “Buy here, pay here” (BHPH) dealerships: BHPH dealerships offer in-house financing for the vehicles they sell. They often offer financing to people with poor or little credit who may be having trouble getting financing elsewhere.
A good place to start is to reach out to direct auto loan lenders and get quotes. Find out what loan amounts, rates, terms, and monthly payments are estimated to be available to you.
Then, if you’re interested in buying from a dealer, visit the dealership, find the car you want, negotiate the price, and see how the dealer’s financing compares to the quotes you’ve collected.
Tip
When you walk into a dealership with your own financing, it can give you more leverage. You can negotiate the sale price as a cash buyer and aren’t reliant on them to tell you if you can afford the car or not.
How to get a personal loan
If you’re interested in going the personal loan route:
- Check your credit: Pull your credit reports to make sure that the information is up-to-date and accurate. If you find a mistake, file a dispute with the credit bureau to get it fixed. You can visit AnnualCreditReport.com for free credit reports.
- Collect quotes: Shop around and check if you prequalify with different lenders.
- Prequalify: You can prequalify without any impact to your credit, though formally applying for a loan may hurt it. Prequalification is not an offer of credit, and your final rate may differ from the estimate.
- Compare quotes: Once you collect a few quotes, compare the estimated loan amounts, APRs, terms, monthly payment amounts, and overall costs to find the best fit.
- Apply: Apply with the lender that seems like the best fit. Once you apply for the loan, the lender will conduct a hard credit inquiry, which can hurt your credit score temporarily. It may also require proof of your identity, income, and employment.
- Get your funds: If you’re approved, you can sign the loan contract and receive the funds. From there, you can shop for a car as a cash buyer. You can expect to receive the funds as soon as the same or next business day after approval with some lenders, but some may take up to a week.
Learn More:
FAQ
Can you use an auto loan to buy a car from a private party?
Yes, it’s known as a private party auto loan. You can get them from banks, credit unions, and online lenders to help you buy a used car from a private seller. For example, LightStream offers private party auto loans from $5,000 to $100,000. With a private party auto loan, lenders may scrutinize the age, value and the vehicle title as part of the qualification process.
Why do auto loans usually have lower interest rates?
Auto loans tend to have lower rates than personal loans because the collateral requirement makes them less risky for lenders. If you default, the lender can seize and sell your vehicle to help recover its investment.
Can I get an auto loan with bad credit?
It is possible to get an auto loan with bad credit. A little over 15% of auto loans were taken out by borrowers with credit scores of 600 or less, according to Experian’s State of the Automotive Finance Market report for the third quarter of 2023. However, lenders typically still require some kind of down payment even if you have bad credit, usually 10% or $1,000, whichever is higher.
Do I need a down payment to buy a car with a personal loan?
Personal loan lenders don’t require down payments. However, they may charge origination fees that reduce the loan amount you receive.
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Meet the expert:
Jessica Walrack
Jessica Walrack is a freelance finance writer and journalist with over a decade of experience. During that time, she’s written hundreds of articles about loans, insurance, banking, mortgages, credit cards, budgeting, and taxes for well-known publications including CBS News MoneyWatch, USA Today, US News and World, Investopedia, and The Balance Money.
