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Using a personal loan for a car

Learn about how to use a personal loan to buy a car as an alternative if a regular car loan isn't right for you.

Can you use a personal loan to buy a car?

Yes, you can. In fact, a personal loan may offer a few extra conveniences you won’t get with a car loan. However, the interest rates may be higher, along with a few other differences, so compare the pros and cons carefully before you apply.

Personal loans you can use to buy a car

  • Min. income of $1,800 /month, 3+ months employed
Personal loanAmountInterest rateLoan termBasic requirements
Loans Canada logoLoans Canada Personal Loan$300 – $50,000Secured from 4.70%, Unsecured 8.00% - 46.96%3–60 months
  • Steady source of income
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Spring Financial logoSpring Financial Personal Loan$500 – $15,00017.99% – 46.96%9 - 48 months
  • Min. income of $1,800 /month, 3+ months employed
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SkyCap logoSkyCap Financial Personal Loan$500 – $10,00012.99% – 39.99%9 - 60 months
  • Min. income of $1,600 /month, stable employment
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Loanz LogoLoanz Personal Loan$1,000 – $15,00029.9% – 46.9%12 - 60 months
  • Min. credit score 570, min. income $1,200/month, 3+ months employed
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LoanConnect logoLoanConnect Personal Loan$100 – $50,000Secured from 4.99%, Unsecured 5.99% - 46.96%3–120 months
  • Currents debts must total less than 60% of income
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Mogo logoMogo Personal Loan$200 – $35,0009.9% – 46.96%6–60 months
  • Min. income of $13,000 /year
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Fairstone logoFairstone Secured Personal Loan$5,000 – $50,00019.99% – 23.99%36 - 120 months
  • Must be a homeowner
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Benefits of using a personal loan to buy a car

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 older or specialty used cars. Getting a personal loan for a used car gives you more vehicle options. Car loan lenders typically only allow you to purchase a used vehicle that is up 7 to 10 years old. However, you can finance nearly any car you want with a personal loan. This includes classic vehicles and used cars of any age or 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.

Drawbacks of using a personal loan to buy a car

Choosing a personal loan to buy a car has downsides as well. Here are some of the drawbacks to consider:

  • Costs. Compared to car loans, with an average interest rate in Canada of 6.15%, you will generally find personal loans have higher interest rates, considering the average personal loan interest rate in Canada is 7.47%. However, if you get a secured personal loan you may be able to score an even lower rate.
  • 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. To get a competitive interest rate on a personal loan, you’ll typically need to have good to excellent credit. If you have fair or poor credit, you might have better luck qualifying for a car loan — since they’re secured and more forgiving of lower credit scores than unsecured personal loans. Check out our guide to bad credit car loans to learn more.

Should I get a personal loan to buy a car?

Here are 3 situations where it might make sense to use a personal loan to buy a car instead of a typical 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 in a private sale from a friend or from an individual on a car buying platform, like Kijiji or 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 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 can you borrow?

You can apply for a personal loan for much more than the value of the car – typically up to $50,000 – with personal loan lenders. You don’t need to supply the vehicle details to your lender, just what you plan to do with the funds.

How can 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 title or registration fees, or if you don’t have a large down payment saved up.

Who gets the loan money?

With a personal loan, you get your funds before you purchase the vehicle, which means that you’re responsible for paying for the vehicle yourself. You basically use the loan money like cash — simply use the loan deposit in your bank account to pay for your car purchase. Car loans, on the other hand, typically go directly to the dealership.

Can you use a car as collateral for a personal loan?

You have the option of applying for a personal loan with or without collateral – though you won’t be able to back it with your car. Standard secured personal loans typically require specific types of collateral like your home, certain assets or investments. If you can get a secured personal loan to buy your car, you could potentially get an interest rate as low as 5.45%.

Compare personal loans to buy a car now

How much does a personal loan for a car 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 5.45% to 47%, depending on the type of loan you apply for and your credit score 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 of up to $50 from both the lender and your bank. 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.

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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 personal loan 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. You can compare personal loans options to buy a car above.
  • 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.

Is using a personal loan instead of a car loan right for me?

Answering the following questions can help you decide if using a personal loan instead of a standard car loan to buy a car makes sense for your specific situation and needs:

  • Is my personal loan enough to cover the cost of the car I want?
    In most cases, you won’t need to borrow a lot to purchase a car. Still, make sure you qualify for a large enough personal loan to cover the car you’re interested in before signing the loan contract.
  • Will I get a better deal with a personal loan or car 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 less towards your loan overall, it can also mean a higher monthly repayment. Make sure you can afford the monthly repayments on a personal loan before applying.

Compare personal loans to buy a car

1 - 8 of 8
Name Product Interest Rate Loan Amount Loan Term Requirements Link
Loans Canada Personal Loan
Secured from 4.70%, Unsecured 8.00% - 46.96%
$300 - $50,000
3–60 months
Requirements: min. credit score 300
Go to site
More Info
A broker with the largest lender network in Canada. Fill out one application and get matched for free with lenders.
Spring Financial Personal Loan
17.99% - 46.96%
$500 - $15,000
9 - 48 months
Requirements: min. income $1,800/month, 3+ months employed, min. credit score 500
Go to site
More Info
If you're not eligible for an unsecured loan, you may be offered a credit builder loan to help improve your credit score.
goPeer Personal Loan
8.00% - 33.92%
$1,000 - $25,000
36 - 60 months
Requirements: recommended income $40,000/year, no payday loan debt, min. credit score 600
Go to site
More Info
Connects creditworthy Canadians looking for an unsecured loan with Canadians looking to invest. Apply in minutes and get a response within 24 hours.
SkyCap Financial Personal Loan
12.99% - 39.99%
$500 - $10,000
9 - 60 months
Requirements: min. income $1,600/month, stable employment, min. credit score 550, no bankruptcy
Go to site
More Info
Apply in less than 5 minutes for an unsecured loan and if approved, receive financing in as little as 24 hours.
Loanz Personal Loan
29.90% - 46.90%
$1,000 - $15,000
12 - 60 months
Requirements: min. credit score 570, min. income $1,200/month, 3+ months employed
Go to site
More Info
Apply online and get approved in less than 3 minutes. Receive funds in as little as 15 minutes. Borrowers with bad credit or no credit can apply.
LoanConnect Personal Loan
Secured from 4.99%, Unsecured 5.99% - 46.96%
$100 - $50,000
3–120 months
Requirements: min. credit score 300
Go to site
More Info
Fill out one application with this broker and get pre-approved by different lenders in 5 minutes.
OFFER
Mogo Personal Loan
9.90% - 46.96%
$200 - $35,000
6–60 months
Requirements: min. income $13,000/year, min. credit score 500
Go to site
More Info
Get a free quote without affecting your credit score and get an unsecured loan the same day. 100-day money-back guarantee: If you're not happy with your loan, pay back the principal and get the 100 days of paid interest and fees back.
SECURED
Fairstone Secured Personal Loan
19.99% - 23.99%
$5,000 - $50,000
36 - 120 months
Requirements: must be a homeowner, min. credit score 560
Go to site
More Info
Use your home equity to get a secured loan with flexible repayment options. Get a free quote without impacting your credit score.
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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 with good to excellent credit, who want to get an older used car or buy from an unconventional seller. They could be best for borrowers who’ve bought a car a before and know what else they’ll need to purchase on top of the car itself.

You can learn more details about the differences between car loans and personal loans in our full guide to the topic here.

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