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Compare car loans vs personal loans

Making the right decision could have a big impact on your future budget.

When you’re looking to buy a new car, part of your research process always involves determining what type of loan you should get. By comparing loan amounts and interest rates between car loans and personal loans, you can get a good idea of how much a loan will cost. Both have their benefits, so weigh your options carefully before committing to a lender.

How do I decide between a personal loan and a car loan?

Both personal loans and car loans can be used to finance a new or used car. Your choice should be based on your needs, your expectations for the future and the car you’re looking to buy. But no matter which you choose, carefully read the terms and conditions attached to each loan to decide if it’s right for you. Not all car loans fund the same thing, and the terms of personal loans can vary widely.

Before you get started, ask yourself these five questions:

  1. Are you expecting your financial situation to change? If you’re anticipating a change in your financial situation, there’s a good chance a personal loan is a better choice. Even if you lose your income and default, your car won’t be used as collateral – meaning you won’t lose it to repossession.
  2. Do you know what car you want to buy? Knowing what car you want to buy puts you in a good position to negotiate with a lender. And since you’re already sure, you can apply for pre-approval on a car loan so you know exactly how much you can afford to sink into your next car.
  3. Are you buying a used car? Buying used instead of new can be an effective way of saving money. However, you might not be able to find a used car loan for the car you want, especially if it’s an older model or has over 100,000 miles, and might have to take out a personal loan instead.
  4. Do you have bad credit? While having bad credit may make it harder to secure a loan, there are still bad credit car loans available. These tend to be a better deal than personal loans. This is because your car acts as collateral for the loan, giving you access to lower interest rates.
  5. Do you want to add extras to your car? It can be costly to make modifications to your vehicle, whether it’s just a new coat of paint or a change to the body of the car. Many car lenders won’t let you add this cost onto your loan. With a personal loan, you can add this cost onto the loan amount to have additional money for the extras.

At the end of the day, the most effective way to compare loans is by looking at specific options side by side. Using a calculator can help you determine the exact value of each loan, and comparing loans by the annual percentage rate (APR) should give you the most accurate look at the final cost of your loan options.

What’s the difference between a personal loan and a car loan?

The exact terms of your loan depend on the lender you choose. However, most lenders don’t stray too far from the beaten path. Your loan will likely have many of these features:

Personal loans

Personal loans are considerably more flexible than car loans. Not only can you find them just about anywhere – online, at your local bank, at credit unions – but they can also have low interest rates without you having to put up collateral. Of course, you’ll still have to compare quite a few options, which can take time you don’t have if you need a car right away.

  • Unsecured. Personal loans are typically unsecured and don’t require collateral. Lenders rely on your credit and financial situation to determine if they should lend to you. But because they aren’t secured, they usually have a higher interest rate than car loans.
  • Shorter application. Since you won’t need to provide collateral, personal loans tend to have shorter applications. You’ll simply list the general purpose of the loan when you apply.
  • Use the funds for just about anything. Most personal loans don’t have restrictions on how you use your funds. You can use your loan to buy a car, cover any accessories and pay for taxes and titling. A car loan may not extend that far.

Car loans

Car loans are designed to cover the cost of a car and related expenses like licensing and registration. You can access a car loan from a dealership, a bank or an online lender, whichever is more convenient for you.

  • Lower interest rates. Since your loan is secured by your vehicle, your rates will be more competitive.
  • Longer application. Car loan applications require more information to be given to your lender, specifically about the make and model of the vehicle you’re buying. But don’t worry, many lenders give you time to shop and fill in this information later.
  • More restrictions. A car loan can only be used for the purchase of a vehicle, although some lenders will allow the loan to cover taxes as well. And if you’re buying a used car, you may face limits on the vehicle you can buy.

Compare car loans and personal loans

Name Product Filter Values Minimum credit score APR Loan term Requirements
PenFed Auto Loans
Starting at 1.79%
3 to 7 years
Active membership with PenFed
Low APR car loans from a well-known credit union.
No minimum credit score
3.9% to 27.9%
18+ years old, annual income of $4,000+, no active bankruptcies
Get pre-qualified for used car financing and receive competitive, personalized rates. Car Loans
Varies by network lender
Varies by lender
Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
CarsDirect auto loans
No minimum credit score
Varies by network lender
Varies by network lender
Must provide proof of income, proof of residence, and proof of insurance.
Save time and effort with this lending service specializing in beginner-friendly or subprime car loan.
Auto Credit Express Car Loans
Must be employed full-time or have guaranteed fixed income of at least $1,500/month and be a current resident of the US or Canada.
Get connected with an auto lender near you, even if you have bad credit.
Monevo Auto Loans
3.99% to 35.99%
3 months to 12 years
Credit score of 500+, legal US resident and ages 18+.
Quickly compare multiple online lenders with competitive rates depending on your credit.
Good to excellent credit
Starting at 0.99%
Varies by lender
18+ years old, good to excellent credit, US citizen
Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out. Car Loans
Starting at 1.89%
550+ credit score, no open bankruptcies, $24,000+ annual income, US citizen or permanent resident, 18+ years old
Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.

Compare up to 4 providers

Name Product Filter Values APR Min. Credit Score Loan Amount
BHG personal loans
$20,000 - $200,000
A highly-rated lender with quick turnaround and reliable customer service.
Credible personal loans
2.49% to 35.99%
Fair to excellent credit
$600 - $100,000
Get personalized rates in minutes and then choose an offer from a selection of top online lenders.
Best Egg personal loans
5.99% to 29.99%
$2,000 - $50,000
A prime online lending platform with multiple repayment methods.
PenFed Credit Union personal loans
5.99% to 17.99%
$600 - $50,000
With over 80 years of lending experience, this credit union offers personal loans for a variety of expenses.
SoFi personal loans
4.99% to 19.63%
$5,000 - $100,000
A highly-rated lender with competitive rates, high loan amounts and no fees.

Compare up to 4 providers

Step-by-step guide to finding the right type of loan

The following steps should help you find a loan that works for you. Use these steps as a guideline; your unique financial situation will impact the exact loan terms and amount you qualify for.

  1. Compare different lenders and write down a list of loans you’ll likely qualify for. Remember to note the loan term and the APR as these will make up the major difference between loans.
  2. Estimate the interest rate and total cost of your loan by getting online quotes or using a calculator.
  3. Check out the features of the loan. Prepayment fees and rate discounts could play a role in helping you decide whether you want a personal loan or a car loan.
  4. Decide which loan is more affordable and best suits your needs. Try to limit your options to two or three lenders.
  5. Fill out an application and wait to see if you’ve been approved. Most lenders have a pre-approval process that lets you check your rates before completing a full application.

Bottom line

Deciding between a car loan and a personal loan can impact your finances for years to come. It’s a big decision, and the right choice will depend on what you want out of a lender. You should read up on your personal loan options and review how car loans work before settling on a loan.

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2 Responses

    Default Gravatar
    HuweyJanuary 27, 2019

    Hi, I’m wondering if it’s best to pay off my car loan with a personal loan with a much lower interest rate and lower monthly repayments, but I’m worried about it affecting my credit score and ability to get a good rate interest rate and borrow more on a mortgage in the future (within the next 5 years). Is this a good idea or should I stick with a car loan to allow me to get a better mortgage and borrow more with a good rate of interest? Can you help?

      Avatarfinder Customer Care
      JoshuaJanuary 28, 2019Staff

      Hi Huwey,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      That’s an interesting question and idea you got there, Huwey. As a comparison website, we are not permitted to provide specific recommendations. However, for you to know the best course of action to take, you would need to first weigh the pros and cons of each option that you have.

      Aside from personal loans, you can also refinance your car loan. However, please know that there’s a possibility for your credit score to lower by a few points when you apply for a new loan, since your new lender may register new hard credit inquiries.

      For this reason, I would highly recommend for you to determine whether the pros outweigh the cons or not when it comes to making your decision.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!


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