When most consumers think of financing a car purchase, they typically consider the financing options available to them through an auto loan. However, there are other options available to finance an automobile purchase, like personal loan to buy a car. This option is more flexible and allows the buyer more freedom as they manage the car purchase, especially for buyers who are seeking to buy a car from a private seller.
But how does it work; when is it the better financial option for the consumer? Here are the details including costs, benefits and comparisons with purchasing a car through an auto loan financing.
Understanding Personal Loan to buy a Car
A personal loan is an unsecured loan for purchase of a car or other purposes, which means it is not secured by collateral. There is not an asset pledged to a lender as there is in an auto loan where the car serves as collateral. A personal loan allows you to take ownership of the car immediately.
Most lenders permit borrowers to use personal loan funds for a major purchase like a vehicle or home improvements or debt consolidation. If you are approved on the personal loan, you will receive the full amount as a lump sum directly into your checking account. You can then utilize your checking account to pay for your purchase with that loan.
The downside? Personal loans generally have a higher interest rate than a loan secured by collateral, like an auto loan, because the lender assumes more risk. For idebt, the lender does not have an asset to recover if the borrower has issures making the monthly payments.
Personal Loan vs Auto Loan: A Side-by-Side Comparison
To decide if this path is right for you, it helps to see how the two financing options differ.
| Feature | Personal Loan | Auto Loan |
| Collateral Required | None — unsecured | Yes, the car is collateral |
| Interest Rate Range | 10% – 23% (average) | 6% – 11% depending on credit and vehicle age |
| Down Payment | Not required | Typically required |
| Loan Purpose | Flexible — any use, including car purchase | Strictly for vehicle purchase |
| Insurance Requirements | No special requirements | Usually must carry full coverage |
| Approval Criteria | Heavily credit-based | Easier for average credit borrowers |
| Ownership | Immediate | Shared until the loan is paid off |
Auto loans generally win on cost, while personal loans win on flexibility.
Interest Rate Trends in 2025: What You’ll Pay
Interest rates fluctuate with credit conditions, but as of October 2025, here’s how things look:
| Loan Type | Average Rate | Best Available | Used Car Rate | Max Rate |
| Personal Loan | 12% – 23% | 10% (excellent credit) | N/A | Up to 36% |
| Auto Loan (New Car) | 6.8% | 5% – 7% | — | Around 16% |
| Auto Loan (Used Car) | 11.5% | 7% – 11% | Up to 22% | 22% |
While the personal loan to buy a car gives you more control, it is also more expensive unless you are already a borrower with strong credit. With strong credit – you can continue to narrow the gap, but for most borrowers, an auto loan costs less than a personal loan.
Why Borrowers Choose Personal Loans Anyway?
Despite higher rates, there are legitimate reasons to choose a personal loan vs an auto loan, depending on your needs and circumstances.
- Flexibility
The loan funds may be offered to you for any car purchase situation, including buying a car from a private seller loan circumstance. Authority banks and credit unions restrict their auto loans to dealership purchases or to newer models. As in, it might not be helpful if you are buying a car from a private owner or a classic car source, an auto loan may not be helpful.
- No Collateral Required
You own the vehicle outright. If you default, the lender can’t repossess your car (though your credit will take a hit). That independence appeals to many buyers.
- Fast and Simple Process
Most personal loan approvals are fully digital and can fund within 24–48 hours. For time-sensitive deals, this can be a huge advantage.
- Predictable Payments
Fixed monthly installments make budgeting easier. Unlike dealership financing, there’s no haggling over insurance packages or balloon payments at the end.
- Useful for Down Payments
Even if you opt for an auto loan, you can use a personal loan for car down payment to boost your upfront amount and qualify for better auto loan terms.
When Using a Personal Loan Makes Sense
A personal loan to buy a car makes sense in a few specific cases:
- You’re buying from a private seller who doesn’t accept financing.
- You’re purchasing an older or rare car that auto lenders won’t finance.
- You have excellent credit, allowing you to secure a low rate comparable to auto loans.
- You prefer not to put the vehicle up as collateral.
- You need fast access to funds for a competitive purchase.
It’s also helpful for people exploring auto loan alternatives, especially if you dislike dealership markups or lender restrictions on car models and age.
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Top Lenders Offering Personal Loans for Car Purchases
Here are a few popular U.S. lenders currently providing best personal loans for car purchase:
| Lender | Loan Range | APR (2025) | Highlights |
| LightStream | $5,000 – $100,000 | 6.74% – 15.24% | Great for excellent credit; no fees |
| SoFi | $5,000 – $100,000 | 8% – 20% | Flexible use, no fees, unemployment protection |
| TD Bank | $2,000 – $50,000 | 9% – 18% | Bank-backed, works for private sales |
| U.S. Bank | $1,000 – $50,000 | 8.74% – 23.99% | Same-day funding, no prepayment fees |
| Upstart | $1,000 – $50,000 | 7.8% – 35.99% | AI-based approval for fair credit borrowers |
Borrowers with strong credit will find the most value from LightStream and SoFi, while those with average or limited credit may consider TD Bank or Upstart.
Key Considerations Before You Borrow
Before you decide to buy a car with a personal loan, weigh these points carefully:
- Interest Costs: Personal loan rates are higher on average. Run the numbers using online calculators to see the total repayment cost.
- Loan Terms: Most personal loans cap at five to seven years. That means higher monthly payments than a long-term auto loan.
- Credit Requirements: You’ll likely need a FICO score above 680 for favorable terms.
- Fees and Penalties: Some lenders charge origination fees or penalties for late payments.
- Insurance: While you won’t be required to carry full coverage, it’s still wise to protect your new asset.
You can engage with features like those on FindCreditLoan.com if you want to evaluate your options easily. You can shop the lenders, evaluate approximate rates, and review lender offers based on your needs – and not affect your credit!
Real-World Example
Let’s say you’re purchasing a $15,000 used car from a private seller.
- With a personal loan at 12% APR over 48 months, your total interest cost would be about $3,900.
- With an auto loan at 7% APR for the same period, you’d pay roughly $2,200 in interest.
That’s a difference of $1,700, but on the other hand, if the seller of the car is not willing to allow dealership financing, then taking a personal loan is a way to get quick access to the car you wish to purchase without complications or delays.
Conclusion
By terms of taking out a personal loan to buy a car, even though you will pay for it at a cost and more than you would under a traditional auto loan, it brings some benefits that would be worth it for a buyer with great credit and for specific types of buyers to accomplish the goal of proper ownership without a long-term guaranty.
If you are looking into your financing options, be sure to spend time on understanding interest rates on personal loans vs. auto loan financing and know your credit score, and know your level of comfort for repayment with one service or the other versus both.
FindCreditLoan.com is a good first-stop for comparison on rates based on customer reviews of lenders, as well rates with U.S.-based lenders all in one place.
At the end of the day, the “best” option depends on value; lower cost or better flexibility. Either way, knowing your financing options helps assure the car you decide to drive you do so with style and health that equally benefits your financial health.