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 the pros and cons carefully before you apply.
Learn more about financing your new car with a personal loan in our guide below.
- Borrow from $500
- Simple online application
- Free credit score upon account creation
Mogo Personal Loan
Apply today to get approved for a personal loan up to $35,000 on flexible terms.
- Max. loan amount: $35,000
- Loan term: 9 months - 5 years
- Turnaround time: Same day
- APR: 5.90% - 46.96%
- Fees: NSF fee - $20 to $50
- Quick pre-approval
- Automatic payments
Personal loans vs. car loans
|Cars you can finance||Any car||New and used cars – however there may be age and km limits|
|Collateral||None with an unsecured personal loan, usually your new car with a secured loan||Your new car|
|Terms||Usually one to seven years||Usually three to seven years|
- Finance any type of car
- Plenty of different loan options
- Funds can be used for additional expenses
- Own your car outright
- No deposit required
- Designed for car purchases
- Larger loan amounts sometimes available
- Secured loans have competitive rates
- Access to add-ons like warranty or insurance
- May qualify with any credit score
- Rates are sometimes higher than car loans
- More difficult to meet eligibility requirements
- Expensive if you have poor credit
- Using collateral for a secured loan and defaulting on your repayments means your collateral will be lost
- Restrictions on the type of car you can buy
- Can’t be used to cover additional expenses
- Usually requires an upfront deposit
How does using a personal loan to buy a car work?
When you have a personal loan, you can use the funds like cash — simply use the deposit in your bank account to finance your car purchase. 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 — but you might have to tell them 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 taxes, buy license plates and pay vehicle registration fees.
Loan terms can range between one and seven years, and you can generally borrow between $1,000 and $35,000, although some lenders will offer more. Many of your options may even be unsecured, putting you at less risk if your financial circumstances change and you’re no longer able to make your repayments.
You can borrow up to $50,000 for your next car
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Representative example: Cedric gets a new car
Cedric has been saving up to buy a new car. He has his eyes on a Honda Civic which, with all the upgrades he wants, is priced at $23,000.00. He has $15,000.00 saved up, which means he will need a loan for $8,000.00. He has looked into car loans, but since he has an excellent credit score and wants to outright own his car, he opts for a personal loan from his bank. He is approved for the full $8,000.00 at a competitive rate of 5% with a loan term of 2 years. With a one-time origination fee of 3%, his choice to get a personal loan is still a better option for his needs and wants.
|Cost of new car||$23,000.00|
|Loan type||Personal loan|
|Interest rate (APR)||5.00%|
|Loan term||2 years|
|Additional fees||Origination fee of 3% ($240.00)|
|Total loan cost||$8,663.31|
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
What are the benefits of using a personal loan?
While a car loan may be better in certain situations, personal loans offer a range of benefits to those looking to finance a vehicle.
- Flexible use of funds. Personal loans allow you to borrow as much as you need for nearly any purpose, so you can use your loan funds to purchase a car, upgrade your insurance or install custom modifications.
- Buy a used car. While some car loan lenders only allow you to purchase a used vehicle under a certain age, you can finance nearly any car you want with a personal loan. This includes classic vehicles and used cars of any age and condition.
- Variety of lenders. You may find a wider range of lenders and loan options if you look for an unsecured personal loan from an online lender, rather than solely comparing car loans.
What are the drawbacks of using a personal loan?
Choosing a personal loan to finance a car has downsides as well. Here are some of the drawbacks to consider:
- Costs. Compared to a car loan, you will generally find personal loans have higher interest rates.
- No add-ons. Car loans usually offer car specific extras — extended warranties and service plans —that generally aren’t available with personal loans.
- Strciter requirements. You might have better luck qualifying for a car loan if you have fair or poor credit — since they’re secured and more forgiving of a low credit score than unsecured personal loans.
3 situations where a personal loan makes more sense
Here are three situations where you might benefit more from a personal loan than a car loan.
- You’re buying from a private seller. Many car loans come with restrictions on where you can buy your car. If you’re interested in buying a car from a friend — or someone you found on Auto Trader — you might have an easier time getting a personal loan.
- You want to buy an older car. Vintage collectors and lovers of older vehicles can have a hard time finding car loans if the car is over a certain age or has too many kilometres on it. You might want to look into personal loans if you’re buying a fixer-upper or purchasing a customized classic.
- You can qualify for a lower interest rate. While most car loans may have a lower interest rate because they’re secured by your car, borrowers with less-than-perfect credit may find a better deal by opting for a personal loan instead.
Buying from a dealership? A car loan could be a better idea
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.
How much does a personal loan cost?
Like all loans, personal loans will charge interest and fees. Before you apply for one, consider these factors when comparing your loan options:
- Interest rate. Interest can be either fixed or variable and usually ranges from 4% to 36%, depending on the type of loan you apply for and your credit and financial history.
- Administrative fees. You may need to pay a fee to borrow your loan.
- Ongoing fees. Some personal loans come with annual fees that will increase your ongoing repayments.
- Late payment and non-sufficient funds fees. If you make a late repayment or fail to make a repayment, you will be charged additional fees. Get in touch with your lender if you think you’ll be late with a repayment and let them know beforehand. Sometimes they’ll be willing to work with you and create a solution.
Where can I get a personal loan to buy a car?
There are a variety of lenders out there, and many of these offer personal loans that you can use to buy a car. Here are some of our top suggestions:
- Online lenders. Online lenders are known for their speed and simple application process. It typically only takes a few minutes to fill out an application, and you may be able to have funds directly deposited into your account by the next business day.
- Banks. You might want to also look into your bank’s personal loan offerings. They sometimes offer discounts or simplified applications to members. Banks also tend to offer relatively low interest rates, though you’ll typically need good or excellent credit to qualify.
- Credit unions. These nonprofit financial institutions work similarly to banks but typically offer lower rates and have less strict credit requirements. It can take a while to get your funds, however, and you’ll have to be a member to qualify.
- Peer-to-peer (P2P) marketplaces. Online P2P marketplaces connect borrowers with investors interested in funding their loans. Funding is typically quick and you can often get competitive rates.
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Is a personal loan right for me?
To help yourself decide if a personal loan makes sense for you, try answering some of these questions:
- Is my personal loan enough to cover the costs? In most cases, you won’t need to borrow a lot to purchase a car. With that said, make sure you can borrow as much as you need with a personal loan before signing a loan contract.
- Can I get a better deal with a personal loan? Try getting pre-approved with a few personal and car loan providers — or at least reach out to ask what rates you can personally expect with each. This will show you which lending option can get you a better deal.
- Does it fit my budget? Personal loans can sometimes come with shorter loan terms than car loans. While a short loan term means you’ll end up paying less in interest and therefore the loan is cheaper, they can also mean higher monthly repayments. Make sure you can afford the monthly repayments on a personal loan before applying.
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 buy 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.
You can compare your personal loan options before applying, or if you think a car loan might be more your speed, read our guide on qualifying for a car loan.
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Frequently asked questions