Editor's choice: Upstart personal loans
- Work and education get you better rates
- Fair credit OK
- No prepayment penalty
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Car loans aren’t the only way to finance a car. When you’re looking for a convenient and easy way to buy a car, a personal loan may offer a few extra conveniences you won’t get with a car loan. However, the interest rates may be higher, so compare your rates carefully before you apply.
|Personal loan||Car loan|
|Cars you can finance||Any car||New and used cars under around 10 years old|
|Collateral||None with an unsecured personal loan||Your new car|
|Terms||Typically 12 to 84 months||Typically 36 to 84 months|
Personal loans work in a very similar way to car loans, although they have a few notable differences:
You can request a loan for much more than the value of the car with a personal loan lender, and you don’t need to supply the vehicle details to your lender, just what you plan to do with the funds.
Once you’ve received the personal loan amount you can use it for the car and however else you see fit. This can be especially useful if you need to pay for taxes and state title fees, or if you don’t have a large down payment saved up.
With a personal loan, you get your funds before you purchase the vehicle. This means that you can use that money like cash — simply use the deposit in your bank account to finance your car purchase. Car loans sometimes go directly to the dealership.
You have the option of applying for a loan with or without collateral when you apply for a personal loan — though you won’t be able to back it with your car.
Personal loan terms can range between one and seven years, and you can generally borrow between $2,000 and $50,000.
While a car loan may be better in certain situations, personal loans offer a range of benefits to those looking to finance a vehicle.
Choosing a personal loan to finance a car has downsides as well. Here are some of the drawbacks to consider:
Here are three situations where you might benefit more from a personal loan than a car loan.
It may be better to use a car loan or dealership financing when you’re thinking about buying from a manufacturer or car dealership You’ll be able to get a competitive rate and may have access to more convenient features with dealership financing.
While how much your loan costs depends on your unique circumstances, you’ll want to consider two main factors: Interest and fees:
You can get a personal loan to buy a car from a variety of lenders. Here are some of our top suggestions:
To help yourself decide if a personal loan makes sense for your car purchase, try answering some of these questions:
It’s possible to use a personal loan to cover the down payment on a new car. But it might not be the best idea, especially if you’re also getting a car loan.
That’s because you’ll end up paying interest on the full value of your car — which can get particularly expensive with a longer loan term. And if you’re applying for two separate loans, you might have trouble qualifying since each application involves a hard credit pull, which lowers your score.
If you need help with the down payment, consider only applying for a personal loan or a car loan company that offers at least 100% financing.
Finding the right financing option comes down to costs, features and flexibility. Car loans can be great for borrowers who want to buy from the dealership. Personal loans tend to work better for those who want to wander off the beaten path by getting an older car or buying from an unconventional seller. They could be best for borrowers who’ve bought a car a before and know what they’ll need to purchase on top of the car itself.
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