Can You Get a Personal Loan for a Car?

Financing a vehicle involves exploring various loan options. While traditional auto loans are a common choice, personal loans also present a viable pathway to acquiring a car. Understanding the characteristics and processes of using a personal loan for a vehicle can help consumers make informed decisions. This article will explore how personal loans function in this context, detail their typical terms, and outline the application procedure.

Personal Loans for Vehicle Purchases

A personal loan provides a lump sum of money that can be used for a variety of purposes, including the purchase of a vehicle. Unlike a traditional auto loan, which is a secured loan where the car itself acts as collateral, most personal loans are unsecured. This means the borrower’s creditworthiness, rather than an asset, primarily determines eligibility and terms. If a borrower defaults on an unsecured personal loan, the lender cannot directly repossess the vehicle, although late payments can severely harm one’s credit score.

Since a personal loan is not tied to the vehicle as collateral, the borrower gains full ownership of the car title immediately upon purchase. This offers flexibility, as there is no lien on the car title from the personal loan lender. This contrasts with auto loans, where the lender holds a lien on the vehicle until the loan is fully repaid. The absence of a lien allows for greater freedom in selling or modifying the car, without needing the lender’s consent.

Using a personal loan for a car can also provide more control over how the funds are spent. For instance, if the car costs less than the loan amount, the remaining funds can be used for other purposes, such as paying off high-interest debt or covering car insurance. This flexibility differs from auto loans, which are specifically for vehicle purchases and may restrict the type or age of cars financed. While traditional auto loans often come with lower interest rates due to the collateral, personal loans offer an alternative, particularly when purchasing from a private seller or avoiding a down payment.

Understanding Personal Loan Terms for a Car

Understanding the financial terms is important when considering a personal loan for a car. Interest rates for personal loans vary significantly, ranging from 6% to 36% Annual Percentage Rate (APR). This range is higher than for secured auto loans, which have lower rates because the vehicle serves as collateral. For example, average auto loan rates were around 6.73% for new cars and 11.87% for used cars in the first quarter of 2025, according to Experian.

Several factors influence the interest rate offered on a personal loan, including the borrower’s credit score, income stability, existing debt-to-income ratio, and the chosen loan amount and term. Borrowers with higher credit scores (often 670 or above) qualify for lower rates and larger loan amounts. A strong employment history and consistent income also indicate a borrower’s ability to repay, which can lead to more favorable terms.

Personal loan amounts range from $1,000 up to $100,000, depending on the lender and creditworthiness. Repayment terms for personal loans span from two to seven years (24 to 84 months). A longer repayment term results in lower monthly payments but more total interest paid over the loan’s life. Conversely, a shorter term means higher monthly payments but less overall interest paid. The repayment schedule involves fixed monthly installments covering both principal and interest.

Applying for a Personal Loan for a Car

Applying for a personal loan to purchase a car involves several steps, beginning with eligibility criteria. Lenders evaluate an applicant’s credit score, income stability, and debt-to-income (DTI) ratio to assess creditworthiness. A DTI ratio, representing the percentage of monthly income used to pay debts, is preferred to be lower, generally below 40-50%. A credit score generally above 600-650 is considered for approval, with higher scores leading to better terms.

Applicants need to gather documents to support their loan application. Common requirements include proof of identity, such as a driver’s license or passport, and proof of address, like a utility bill or lease agreement. Proof of income and employment is required, often including recent pay stubs, W-2 forms, or tax returns from the past two years. Bank statements (typically for the last three to six months) are also requested to verify financial stability and repayment capacity.

The application process can be completed online, allowing for streamlined submission of information and documents. After submission, the application undergoes underwriting, where the lender assesses risk by reviewing financial details and credit history. This evaluation helps determine whether to approve the loan, the amount, and the interest rate. Once approved, borrowers receive a loan offer detailing the terms, which they must review and accept. Funds are disbursed directly to the borrower’s bank account, often within a few days of approval and signing the loan agreement.