It is possible to use personal loans for buying vehicles, but the situation has to be right for a personal loan to make sense. Personal loans often have higher interest rates. For this reason alone, many borrowers find that auto loans meet their needs.
But we’ve researched scenarios in which using personal loans for vehicles might make sense.
In this guide:
- Why use personal loans for buying vehicles?
- Differences between personal loans and auto loans
- Pros and cons of using a personal loan for a vehicle
- Should you use a personal loan for a vehicle?
- How to use a personal loan to buy a vehicle
- Best personal loans for vehicles
- What type of vehicles can I use a personal loan to buy?
Why use personal loans for buying vehicles?
Personal loan uses are wide ranging. A borrower might opt to take out a personal loan instead of an auto loan in unique circumstances, and we have listed several reasons below.
You can’t qualify for an auto loan
Auto loans are often easier to qualify for, but lenders can be more flexible with requirements for personal loans, such as a lower credit score for a personal loan. A personal loan may also be the way to go if an auto lender requires a down payment you can’t provide.
To avoid buying comprehensive and collision insurance for the vehicle
Auto loan-financed vehicles often require comprehensive and collision insurance for the vehicle. Buying a vehicle with a personal loan may allow you to forgo this requirement, lowering your insurance costs. However, forgoing this insurance is risky and may not be allowed in some states.
When buying from a private party
A personal loan can simplify buying a vehicle from a private seller, such as a family member or individual selling a car online. The money is in your hands, and you can negotiate the sale how you want.
You could also consider a private party auto loan to fund this purchase. Like personal loans, private party auto loans often come with higher interest rates than traditional auto loans.
You’re purchasing an older vehicle or vehicle with a salvage title
Many lenders do not approve auto loans on certain vehicles, such as those with higher mileage, salvage titles, or “mechanic specials” because these vehicles represent more risk. A personal loan offers more flexibility to get a vehicle of this type.
The vehicle is for a business
When buying a vehicle for a business, such as a food truck, an auto loan won’t cover the additional expenses of operating your business. A personal loan (or another type of small business loan) may be more suitable for your needs in this case.
Plus, certain business vehicles, such as carts or trailers, may be considered equipment and not qualify for an auto loan.
The vehicle is difficult to finance with an auto loan
Boats, ATVs, scooters, motorcycles, and mobile homes often require different financing than an auto loan. Many lenders offer loans specific to these vehicles, but a personal loan will also work.
Differences between personal loans and auto loans
The main difference between an auto loan and a personal loan that may cause concern is the higher interest rate for personal loans, but it helps to be aware of the other distinctions as well.
|Auto loans||Personal loans|
|Purpose||For vehicles||Can be used for any reason|
|Interest rate||Lower interest rate, around 4.95% APR (as of March 2023)||Higher interest rate than an auto loan, around 9.65% APR (as of March 2023)|
|Term||Can elect a term longer than 5 years and as short as 1 year||Often max out at 5 years|
|Down payment||May require a down payment or equity in the vehicle||No down payment required|
|Collateral||Car is collateral on the loan||No collateral required|
|Credit score||Lenders have different credit score requirements—many might accept low-credit borrowers at a higher interest rate.||Lenders may offer personal loans for borrowers with lower credit scores but often at a much higher interest rate.|
|Fees||Fees vary depending on the lender. Origination fees for auto loans tend to be lower than for personal loans.||Fees vary depending on the lender. Origination fees tend to be higher for personal loans compared to auto loans.|
Pros and cons of using a personal loan for a vehicle
Using a personal loan for a vehicle has several benefits and drawbacks.
- You may be able to negotiate a cash discount with the dealer. When you buy your car, using a personal loan means you’ll pay the seller with funds from your account, which looks like a cash transaction. By paying the seller all upfront, you may be able to negotiate a cash discount.
- Your vehicle isn’t used as collateral on the loan. When you use a personal loan, your vehicle doesn’t secure the loan, which means the lender may not be able to repossess it if you fail to make payments on the personal loan.
- A personal loan is more flexible than an auto loan. You may use a personal loan for any reason and it doesn’t come with as many restrictions. There’s no inspection on the vehicle or mileage-per-year requirement.
- Higher interest rate. Personal loans come with a higher interest rate. Most lenders offer personal loans with APRs between 5.99% and 35.97%, and few borrowers qualify for the lowest rate. Auto loan APRs range from 2.99% to 24.99%. It’s almost always more expensive to finance a car with a personal loan than an auto loan.
- Fewer options for term length. Personal loans don’t typically offer the flexibility in terms that an auto loan can. Most are shorter than five years, which means you may have a higher payment than you want (but you’ll also pay it off faster).
- It may be harder to qualify. A personal loan is unsecured, so you may need lower debt levels and a higher credit score to be eligible.
Should you use a personal loan for a vehicle?
Auto loans almost always come with a lower interest rate, so if you can get an auto loan, it will likely be your least expensive option.
Still, a personal loan may make sense in certain scenarios. Questions to ask yourself include:
- Can you qualify for an auto loan? An auto loan is often a better option if you can qualify.
- What type of car are you purchasing? Are you looking for a cheaper, older car that needs a personal loan? Are you seeking a business vehicle or other type that doesn’t qualify for an auto loan? Are you willing to pay a higher interest rate for a salvage car or mechanic special?
- Do you need more flexibility than an auto loan offers? If you’re buying a nontraditional vehicle or from a private party, a more flexible personal loan may be what you need.
How to use a personal loan to buy a vehicle
Once you’ve decided to use a personal loan to purchase a vehicle, take these steps to obtain your loan:
1. Shop for a lender
Check different credit unions and banks for rates and fees on personal loans. It’s crucial to shop around for the best rate. Many lenders can do a “soft credit check” (which won’t affect your credit score) to show your interest rate without applying for the loan.
For lenders requiring a full application, a hard credit check is necessary to see your rate. However, if you complete all applications within 45 days, it only counts as one inquiry on your credit report.
2. Apply for a personal loan
Many lenders require your personal information, employment, income, and desired loan amount and term to apply. Some decisions on a personal loan can be made on the same day.
3. Accept the terms, sign, and close
If the terms are acceptable, you’ll sign documents to close on the loan. Personal loans often range from $3,000 to $100,000 with 12- to 84-month terms. Interest rates vary depending on your credit, market rates, and where you get your loan.
4. Receive the funds
You’ll receive the entire amount of your personal loan, often in your checking account. You may even get the funds the same day you sign.
5. Pay with the funds
Because you receive direct funds, you’ll also pay directly. You can write a check or wire money from your account for your chosen vehicle.
Best personal loans for vehicles
Where can you find the best personal loans to finance your vehicle purchase?
Based on our evaluation of personal loan providers’ interest rates, term lengths, fees, loan amounts, ratings from the Better Business Bureau and Trustpilot, and other desirable features, we’ve determined these three lenders are among the best for this purpose.
LightStream specializes in lending to borrowers with good credit, which makes their personal loan terms competitive.
LightStream offers loans from $5,000 to $100,000 with interest rates between 5.99% and 23.99% APR. Its fixed rates are guaranteed. If you find a better rate with another lender, Lightstream will beat it by 0.10%.
LightStream is all online and getting your funds the same day is possible.
- Credit score category: Good to excellent
- Soft credit pull to check rates? No
- Deposit time: Same day
- Origination fee: None
- Late fee: None
- Discounts: 0.50% for autopay
- Repayment terms: 2 – 12 years
Personal Loans for Vehicles
- Loans up to $50,000
- Check your rate without impacting your credit score
- Flexible personal loan options for borrowers with lower credit scores
Upgrade is one of the better lenders offering personal loans to borrowers with fair and poor credit.
Rates are competitive with other lenders in this market, with interest rates ranging from 8.24% to 35.97% APR. Funds can be available within a day, but an origination fee between 1.85% and 8.99% can be costly.
- Credit score category: Fair and bad credit
- Soft credit pull to check rates? Yes
- Deposit time: Within 24 hours of clearing necessary verifications
- Origination fee: 1.85% – 8.99%
- Late fee: Up to $10
- Discounts: None
- Repayment terms: 2 – 6 years
Personal Loans for Vehicles
- Check your rate without impacting your credit score
- Loans from $1,000 – $50,000
- Interest rates from 6.70%% – 35.99%% APR
Upstart is a unique personal loan lender because it considers more than just your credit score. It also accounts for your education and employment when making credit decisions.
Upstart offers a soft credit check so you can see what interest rate you’ll qualify for without affecting your credit score. Loans up to $50,000 are available and can be funded within one business day.
- Credit score category: Poor to excellent
- Soft credit pull to check rates? Yes
- Deposit time: Next business day
- Origination fee: 0 to 10%
- Late fee: $15 or 5% of the past due amount, whichever is greater
- Discounts: N/A
- Repayment terms: 3 or 5 years
What type of vehicles can I use a personal loan to buy?
Personal loans can be used to buy many vehicle types. An auto loan may have restrictions a personal loan doesn’t. Often, you might consider other financing options, depending on the vehicle type.
Below, we address whether you can use a personal loan to buy various types of vehicles, as well as offer additional financing options to consider and links to resources for further reading.
Can I use a personal loan to buy a car?
You may use a personal loan to buy a car, but we recommend considering an auto loan first. You can read more about how a personal loan compares with an auto loan for car buying.
Can I use a personal loan to buy an ATV?
You may use a personal loan to purchase an ATV, but you have other options, including ATV loans, retailer financing, and 0% APR credit cards.
Can I use a personal loan to buy a food truck?
Personal loans can be used for a food truck purchase. There also are other financing options to consider, including a small business administration loan, microloans, a business line of credit, a business term loan, or an equipment loan.
Can I use a personal loan to buy a scooter or moped?
You may use a personal loan to buy a scooter or moped. Also consider dealer financing or a loan designed for a scooter or moped from a lender.
Can I use a personal loan to buy a Jet Ski?
You can purchase a Jet Ski with personal loans, dealer financing, jet ski loans, or credit cards. Consider the pros and cons of every option.
Can I use a personal loan to buy a snowmobile?
A personal loan can be used to finance a snowmobile. Dealer financing and power sport loans are other ways to purchase these vehicles.
Can I use a personal loan to buy a boat?
Options for financing a boat include secured and unsecured personal loans, various boat loans, and marine financing.
Can I use a personal loan to buy a mobile home?
A personal loan can finance a mobile home purchase. Chattel loans, seller/manufacturer financing, and RV loans are also options. Our guide on mobile home financing can help you decide which is suitable.