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How to use a personal loan to buy a car

Learn about using this financing alternative if a regular car loan isn't right for you.

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FlexMoney Personal Loan

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  • Rates from 18.90% - 46.93%
  • Loan term from 6 - 60 months
  • Pay off loan anytime
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Can you use a personal loan to buy a car?

Yes, you can. Traditional 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. The interest rates may be higher, along with a few other differences, so compare the pros and cons carefully before you apply.

Personal loans vs. car loans

Personal loanCar loan
Cars you can financeAny carNew and used cars – there may be age and km limits
CollateralNone with an unsecured personal loan, usually your new car with a secured loanYour new car
TermsUsually one to seven yearsUsually three to seven years
Pros
  • Finance any type of car
  • Plenty of different loan options
  • Funds can be used for additional expenses
  • Own your car outright
  • No down payment required
  • Designed for car purchases
  • Car loans are secured loans which usually have more competitive rates
  • Access to add-ons like warranty or insurance
  • May qualify with less-than-perfect credit
Cons
  • Rates are sometimes higher than car loans
  • More difficult to meet eligibility requirements
  • Expensive if you have poor credit
  • Must pay for insurance and fees yourself
  • Restrictions on the type of car you can buy
  • Can’t be used to cover additional expenses
  • The lender technically owns the car until you pay off the car loan
  • Usually requires an down-payment upfront

How does using a personal loan to buy a car work?

Personal loans work in a very similar way to car loans, although they have a few notable differences:

How much you can borrow.

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.

How you spend the money.

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.

Who gets the money — and when.

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.

Collateral.

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 1 and 10 years, and you can generally borrow between $500 and $50,000.

Borrow up to $50,000 for your next car

Compare personal loans to buy a car

Name Product Interest Rate Loan Amount Loan Term Requirements Credit Score Link
LoanConnect Personal Loan
Secured from 1.90%, Unsecured from 5.75%-46.96%
$500 - $50,000
3 - 120 months
Currents debts must total less than 60% of income
Min. credit score: 300
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An online broker who helps inform clients towards better finances. Get pre-approved by different lenders for unsecured or secured loans in 5 minutes with any credit score.
goPeer Personal Loan
8.00% - 31.00%
$1,000 - $25,000
36 - 60 months
Recommended income of $40,000 /year
Min. credit score: 600
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Canada's first regulated consumer peer-to-peer lending platform offering unsecured loans. Connects creditworthy Canadians looking for a loan with Canadians looking to invest. goPeer strives to offer the most competitive interest rates. Apply in minutes and get a response within 24 hours.
Spring Financial Personal Loan
17.99% - 46.96%
$500 - $15,000
9 - 48 months
Min. income of $1,800 /month, 3+ months employed
Min. credit score: 400
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An online lender offering unsecured personal loans and credit builder loans. Those filing for bankruptcy or a consumer proposal can also apply. If you're not eligible for an unsecured loan, you may be offered a loan to help rebuild your credit.
ConsumerCapital Personal Loan
19.99% - 34.99%
$1,500 - $12,500
24 - 60 months
Min. income of $1,900 /month, 6+ months employed
Min. credit score: 600
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More Info
An online lender that provides fast unsecured personal loans. Complete an application in less than 10 minutes and get a decision within 24 hours. For faster loan approval, complete the Flinks bank integration in the app.
SkyCap Financial Personal Loan
12.99% - 39.99%
$500 - $10,000
9 - 36 months
Min. income of $1,200 /month, stable employment
Min. credit score: 550
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An online lender offering unsecured personal loans to borrowers with a wide range of credit scores. Apply in less than 5 minutes and if approved, receive financing in as little as 24 hours.
FlexMoney Personal Loan
18.90% - 46.93%
$500 - $15,000
6 - 60 months
Min. income of $2,000 /month, 3+ months employed
Min. credit score: 500
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An online lender offering flexible unsecured loans. Apply in less than 10 minutes and if approved, receive financing in as little as 24 hours. Pay off your loan at any time.
Loans Canada Personal Loan
Secured from 2.00%, Unsecured from 8.00% to 46.96%
$300 - $50,000
3 - 60 months
No min. income or employment requirements
Min. credit score: 300
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An online broker with the largest lender network in Canada. Get matched for free with lenders offering both unsecured and secured loans through one quick application regardless of your financial situation.
OFFER
Mogo Personal Loan
9.90% - 46.96%
$200 - $35,000
6 - 60 months
Min. income of $13,000 /year
Min. credit score: 500


Mogo offers a 100-day money-back guarantee. If you're not happy with your loan, pay back the principal and get your 100 days of paid interest and fees back.
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An online lender who aims for a hassle-free process through same-day unsecured loan approval and funding. Get a loan fast and track your credit score for free.
Fairstone Personal Loan (Unsecured)
26.99% - 39.99%
$500 - $25,000
6 - 60 months
Able to make monthly repayments on your loan
Min. credit score: 560
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An online lender with a team dedicated to professional service. Get a quote for an unsecured loan without impacting your credit score. Receive funds within as little as 24 hours. No prepayment fees.
Fairstone Personal Loan (Secured)
19.99% - 23.99%
$5,000 - $50,000
60 - 120 months
Must be a homeowner
Min. credit score: 560
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Use your home equity to get a secured loan up to $50,000 with flexible repayment options and a long loan term. Get a quote without impacting your credit score.
Loan Away Personal Loan
19.90% - 45.90%
$1,000 - $5,000
6 - 36 months
No min. income or employment requirements
Min. credit score: 300
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A lender that approves unsecured loans in as little as 20 minutes. Get affordable monthly repayments with any credit score.
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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.
  • Tougher 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.

  1. 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.
  2. 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.
  3. 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 get a regular 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.

Compare personal loans now

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.

Bottom line

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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