5 questions to decide between a car loan and personal loan

Compare car loans vs. personal loans

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Unsure whether you should take out a car loan or personal loan? Here’s how to decide.

When you’re looking to buy a new car, part of your research process is likely figuring out what type of loan you should get. Determine how much you can save by comparing loan amounts and interest rates between car loans and personal loans. Our guide will explain the differences and help you work out how much you could save by opting for one instead of the other.

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

The exact terms of your loan depends on the lender you choose, but you can expect to find the following features with each type of loan:

Car loans

These are dedicated loans designed to cover the cost of a car and related expenses such as licensing and registration. You can borrow a car loan from your dealership or your bank, whichever is more convenient for you.

  • Secured. A car loan is secured with your vehicle.
  • Lower interest rates. Since your loan is secured, your rates will be more competitive. This is because the lender has collateral—your vehicle—as insurance if you default on your loan.
  • Longer application. You’ll need to supply more information to your lender, specifically about the make and model of the vehicle you’re buying, when you apply.
  • More restrictions. A car loan can only be used for the purchase of a vehicle.

Personal loans

Personal loans are considerably more flexible, and you can find lenders just about anywhere — online, local banks, credit unions and more.

  • Unsecured. While car loans are typically secured, personal loans are unsecured and don’t require collateral. This means it relies on your credit and usually has a higher interest rate than a car loan.
  • 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 will come without strict restrictions on purpose. You should be able to use your funds for the purchase of a car, and if there’s anything left over, you can use the remaining funds to cover other expenses.
car.Loan.com Car Loans

Our top car loan pick: car.Loan.com

Get matched with a local car dealership to finance your car purchase. Bad credit, no credit OK.

  • Specializing in 'buy here, pay here' car loans. No banks or credit unions.
  • Typically hear back from a rep within 24 hours.
  • Free loan-matching service. No obligation offers.
    Credible Personal Loans

    Our top pick: Credible

    Quickly get personal loan offers from top online lenders.

    • Minimum Loan Amount: $1,000
    • Maximum Loan Amount: $100,000
    • Loan Terms: 2–7 years
    • One simple form
    • Must have good to excellent credit

      5 questions to ask to help you decide

      Both options are valid when you’re looking to buy a new or used car, and your choice should be based on your individual needs. Carefully read the terms and conditions of each loan you’re considering when deciding if it’s right for you. Not all car loans are alike, and the terms of personal loans can vary widely.

      Here are some things you should consider:

      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. An unsecured loan may carry less risk in an uncertain future, and if you opt for variable rates, you’ll likely be able to take advantage of additional repayments without a penalty fee.
      2. Do you know what car you want to buy? Getting preapproval for a car loan allows you to know exactly how much you can spend when shopping for a new or used vehicle.
      3. Are you buying a used car? Buying used instead of new can be an effective way of saving money, but you might not be able to find a used car loan for the car you want and might have to take out a personal loan instead. For instance, some car loans require the vehicle to be less than eight years old. Personal loans won’t have these restrictions.
      4. Do you have bad credit? Bad credit car loans are available, but you’ll find more options with an unsecured bad credit personal loan.
      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.

      Compare car loans and personal loans

      Rates last updated September 26th, 2018

      Reveal your potential loan offers and rates

      Answer two quick questions to filter the loan offers and get the best one for you.

      Select your credit score range

      I don't know my credit score

      Finally, select where you live.

      To get your credit score:

      Experian logo

      Experian is a leading provider of personal and business credit reporting. Find out your FICO score now for less than the cost of a cup of coffee.

      Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
      Name Product Product Description Minimum Credit Score Term of Loan Requirements
      car.Loan.com Car Loans
      Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
      300
      Varies by lender
      Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
      Auto Credit Express Car Loans
      Get connected with an auto lender near you, even if you have bad credit.
      300
      Typically 3 to 6 years
      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.
      LendingClub Auto Refinancing
      Lower your monthly car payments and save on interest through a fast and easy online application process.
      Fair or poor credit
      Minimum of 2 years
      Car must be less than 10 years old with fewer than 120,000 miles. Current loan must have a balance between $5,000 and $55,000 and at least 24 months left in its term.
      MotoRefi Car Loan Refinancing
      A car loan connection service for borrowers looking to refinance.
      525
      1–6 years
      Must have an income of at least $2,000/month and have a vehicle with less than 100,000 miles.
      myAutoloan.com Car Loans
      Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.
      550
      24 to 84 months
      Must have a Social Security number; make $24,000+/year; have no open bankruptcies.
      LendingTree Auto Loans
      Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.
      670
      Typically 1 to 7 years
      Must be a US citizen and 18+ years old. Must have good to excellent credit.
      Capital One Auto Financing
      You could qualify for a car loan of up to 40000, but not all dealers accept this bank's financing.
      Good to excellent credit
      36 to 72 months
      Valid street address; existing Capital One accounts in good standing. Car must be a 2006 model or newer with less than 120,000 miles.
      Wells Fargo Auto Loans
      Auto loans with high loan amounts to cover your car purchase or refinancing needs.
      Good to excellent credit
      1 to 6 years
      Your income and assets must support your existing debt obligations and the desired loan amount.

      Compare up to 4 providers

      Rates last updated September 26th, 2018

      Reveal your potential loan offers and rates

      Answer two quick questions to filter the loan offers and get the best one for you.

      Select your credit score range

      I don't know my credit score

      Finally, select where you live.

      To get your credit score:

      Experian logo

      Experian is a leading provider of personal and business credit reporting. Find out your FICO score now for less than the cost of a cup of coffee.

      Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
      Name Product Product Description Min. Credit Score Max. Loan Amount APR
      Credible Personal Loans
      Get personalized rates in minutes and then choose a loan offer from several top online lenders.
      Good to excellent credit
      $100,000
      4.99%–36% (fixed)
      Even Financial Personal Loans
      Get connected to competitive loan offers instantly from top online consumer lenders.
      580
      $100,000
      4.99%–35.99% (fixed)
      LendingClub Personal Loan
      A peer-to-peer lender offering fair rates based on your credit score.
      660
      $40,000
      6.16%–35.89% (fixed)
      Monevo Personal Loans
      Quickly compare multiple online lenders with competitive rates depending on your credit score.
      580
      $100,000
      3.09%–35.99% (fixed)
      SoFi Personal Loan Fixed Rate (with Autopay)
      No fees. Multiple member perks such as community events and career coaching.
      680
      $100,000
      6.990% – 14.865% (fixed)
      Payoff Personal Loans
      Pay down your debt with a fixed APR and predictable monthly payments.
      640
      $35,000
      5.99%–24.99% (fixed)
      NetCredit Personal Loan
      Check eligibility in minutes and get a personalized quote without affecting your credit score.
      550
      $10,000
      34%–155% (Varies by state) (fixed)
      Best Egg Personal Loans
      A prime lender with multiple repayment methods.
      640 FICO®
      $35,000
      5.99%–29.99% (fixed)
      FreedomPlus Personal Loans
      Consolidate debt and more with these low-interest loans. Cosigners welcome.
      640
      $35,000
      4.99%–29.99% (fixed)
      OneMain Financial Personal and Auto Loans
      An established online and in-store lender with quick turnaround times. Poor credit is OK.
      Varies
      $30,000
      16.05%–35.99%* (fixed)

      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. This is a guideline, so remember to take into account your personal financial situation when determining what type of loan you want to borrow.

      Whether you know which type of loan you’re going with or are still unsure, it’s a good idea to compare your loan options before deciding which lender to go with.

      1. Check out different providers and assemble a list of loans you’ll likely qualify for.
      2. Estimate the interest rate and total cost of your loan by getting online quotes or using a calculator.
      3. Compare the features of the loan such as prepayment fees and rate discounts.
      4. Decide which loan is more affordable and best suits your needs best.
      5. Fill out an application and wait to see if you’ve been approved.

      Bottom line

      Deciding what type of loan you want will impact your finances for years to come. It’s a big decision, and the right choice depends on what you want out of a lender. Take your time to compare all your options and find the loan the suits your needs.

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