Can You Use a Personal Loan to Buy a Car? When It Beats an Auto Loan

Some personal loan lenders let you apply online and get the money the same day, which can beat hours in a dealership financing department. But it can be expensive.

In the second quarter of 2026, banks charged an average of 11.86% on two-year personal loans, compared with 7.14% on five-year new-car loans, according to the Federal Reserve. For most buyers, an auto loan is cheaper. A personal loan makes sense mainly when the car won’t qualify for one.

Can I use a personal loan to buy a vehicle?

Yes. Personal loan lenders put few restrictions on loan use. You can use one to consolidate debt, pay for a wedding, or cover medical bills. Lenders set their own limits, however, and common ones include gambling, investing, and paying for college, so check your loan agreement.

That said, personal loans usually have higher annual percentage rates (APRs) and shorter terms than auto loans, since they aren’t secured by the vehicle. For most car buyers, an auto loan is cheaper.

Read more >> How To Get A Lower Interest Rate On A Personal Loan

Personal loans vs. auto loans

You can use a personal loan or an auto loan to buy a car, but with distinct differences that come down to rates and terms.

Source: Writer research based on advertised rates and terms from 25 personal loan lenders and 17 auto lenders, collected November 2026. The lowest rates go to borrowers with strong credit, and only 3 auto lenders publish a maximum APR. Rates change frequently, so confirm yours before applying.

Collateral

Most personal loans are unsecured, which means you don’t put up any collateral. If you miss payments, the lender can charge late fees and send your account to collections. It can also sue you. If it wins a court judgment, it may be able to garnish your wages or take money from your bank account, depending on your state’s rules.

Car loans are secured by the vehicle you purchase, and the lender can repossess and sell the car if you fall behind. In many states, that can happen as soon as you’re in default, without a court order.

If you’re already behind on a loan, a nonprofit credit counselor can help you sort out your options. The National Foundation for Credit Counseling can connect you with free or low-cost counseling at 800-388-2227.

Annual percentage rates (APRs)

In general, personal loans have higher APRs than car loans. We analyzed more than 40 personal loan and auto lenders and found advertised rates between 5.96% and 35.99%. By contrast, advertised rates from 17 auto lenders ranged from 2.89% to 6.99%. Twelve of the 25 personal loan lenders charge an origination fee of up to 10% of the loan, so compare APRs, which include that fee.

Terms

About half of the 25 lenders we analyzed cap personal loans at five years, and two go longer. None charge a prepayment penalty.

Most auto lenders offer longer terms, and 84 months is the most common max. A few go up to eight years to repay the loan, which lowers your monthly payment. You’ll pay more interest overall, and on a long loan, you can end up owing more than the car is worth.

Eligibility requirements

Of the 11 lenders in our research that publish a minimum credit score, seven accept scores below 650.

For auto loans, you can qualify with fair or even bad credit, though you’ll pay a higher APR. Because auto loans are secured by the purchased vehicle, lenders set vehicle restrictions. Some lenders, for example, cap the car’s age or mileage.

Run the numbers >> Use Kikoff’s auto loan calculator to estimate an auto loan payment, then compare it with a personal loan quote at your rate.

When does it make sense to use a personal loan to buy a car?

A personal loan can make sense in two specific circumstances:

• You plan on buying an older or high-mileage car. You may struggle with approval for a traditional auto loan to buy a classic, antique, or high-mileage vehicle.
• You want to buy a totaled or salvaged title vehicle. Many auto lenders won’t finance cars with a salvage or rebuilt title, so a personal loan may be your only option.

If your situation doesn't fit into either of those categories, it's worth shopping around with auto loan lenders to find a car loan that works for you.

‍Before you buy a car with a rebuilt title, have an independent mechanic inspect it, check its title history through the National Motor Vehicle Title Information System, and get an insurance quote. Coverage on these cars isn’t a given.

How to get a personal loan to buy a car

1. Check your credit

Your credit score impacts your eligibility for a personal loan and the interest rates you'll qualify for, so get your free credit reports from all three bureaus each week at AnnualCreditReport.com.

2. Compare lenders and rates

Compare personal loan rates from several lenders. Use prequalification, which checks your eligibility with a soft inquiry that doesn’t affect your credit.

Formal applications require a hard check, but FICO counts multiple auto loan inquiries made within 14 to 45 days as one, depending on the FICO version.

3. Submit an application

Once you find a loan that works for you, fill out and submit the loan application. Many online personal loan lenders return a decision within minutes.

That grouping doesn’t apply to personal loans. Each personal loan application counts as a separate hard inquiry, so prequalify first and apply only where you’re likely to be approved.

4. Wait for loan funds

If the lender approves your application, you'll sign a loan agreement, and then they deposit the money directly into your bank account. Once the deposit clears, you can use the funds as you choose.

5. Purchase the car

When you go to a dealership, you can purchase a car as if you were paying cash since you have the personal loan funds in your account.

Read more >> What Credit Score Do You Need for a Personal Loan?

Bottom line

A personal loan can buy any car from any seller, but you’ll usually pay more for that freedom. If an auto lender will finance the car, that’s typically the cheaper route. Either way, your credit sets the rate, and on a five-year loan that rate applies to every payment.

Kikoff’s Credit Account reports your on-time payments to Equifax, Experian, and TransUnion, with no credit check to sign up. Plans start at $5 a month.