How to Get a Personal Loan for a Car?

A car purchase is a responsible procedure requiring much time and effort. Furthermore, it is becoming increasingly expensive. Although the auto market in the U.S. is large and offers a vast selection of various models, it is often challenging to find a vehicle meeting all your requirements at a reasonable price.

Getting financing for buying a car is a common phenomenon in the country. Today, you can choose from various borrowing money options for purchasing a vehicle. While car loans are a traditional way to pay for your auto, the question “How to get a personal loan for a car?” appears often. Keep reading to explore how financing a car through a personal loan works and get the tips for getting a personal loan for a vehicle.

Can You Consider Personal Loan Options for Purchasing a Car?

You can use unsecured personal loans in any way you want, including car purchases. However, you should understand that getting a car loan with personal credit is usually more costly and challenging than getting an auto loan. If considering personal loan options for purchasing a car, be prepared to pay a higher interest rate than in the case of auto loans.

You need a good credit score to get approved for a personal loan. Traditional financial institutions, such as banks and credit unions, perform a hard credit check to ensure you can repay the debt on time. Auto loans allow you to avoid hard credit inquiries, as lenders use your car as collateral and can seize it if you fail to return the money.

Steps to Secure a Personal Loan for a Vehicle

It is simpler than you think to secure a personal loan to buy a car. To get the financing, you need to take five simple steps:

Step 1. Choose a car

Deciding which auto you want to purchase is a crucial step when applying for a personal loan. You can shop around various loan options when you know the amount you need to borrow. After choosing a vehicle, contact a seller to inform them about your buying intention.

Step 2. Compare lenders

You should not accept the first offer if you want to borrow money on favorable terms. You can take a personal loan from banks, credit unions, or online lenders. Shop around loan providers to choose an option with the lowest interest and the most convenient repayment term.

Step 3. Apply for a loan

After choosing the most suitable option, you need to apply. Provide the documentation needed for a personal loan for a car and submit your request.

Step 4. Buy an auto

Most lenders will deposit the funds in one lump sum directly into your bank account. You can use them to purchase a car and, if some money is left, pay for registration, car insurance, or other costs. Alternatively, you can repay your loan with this money and lower your remaining balance.

Step 5. Repay your debt

After purchasing a car, you can start repaying your personal loan. Read your loan agreement carefully before signing to ensure you can return the money by a set date. Responsible borrowing is the best way to avoid late fees and dings to your credit score.

Secured and Unsecured Personal Loans

Personal loans are typically unsecured, which means they don’t require collateral from borrowers. You can take the necessary loan amount without the risk of losing your car or home. Although unsecured loans often come with higher interest rates, they are typically a safer option.

When considering your application, lenders check your qualifications for personal loans for car purchases. They include your credit report, credit score, bank accounts, income, and other factors, depending on the financial institution. While it may be challenging to get money when you don’t meet the lender’s criteria, you can secure your loan by collateral to increase your chances of approval. A secured personal loan has a lower interest rate and is more affordable. However, it is crucial to borrow only if you can repay the debt on time to avoid losing your vehicle.

Advantages of Using Personal Financing for a Car Purchase

While auto loans are a popular choice for buying a vehicle, using personal financing for a car purchase is often an excellent solution. Pay attention to its advantages to ensure the option is right for you:

No Down Payment

While many car loans require a down payment, personal loans allow you to avoid it. The lack of down payments makes this borrowing option more affordable, as you don’t need to spend time saving a large sum.

No Collateral

Personal loans are typically unsecured loans that don’t require collateral. Unlike car loan lenders, personal loan providers will not seize your vehicle if you default on your loan. It makes your borrowing safer and helps avoid additional losses.

Fast Cash

Although the waiting time for personal loans varies depending on the financial institution, many lenders can provide you with funds within several days. It allows you to pay for your expenses fast and manage to purchase a car from a private seller.

More Flexibility

A car loan is an excellent option for auto buying, but it can’t be used for any other purpose. You can borrow only the amount of the vehicle. At the same time, personal loans can cover your various expenses and allow you to borrow more than the car’s amount. However, it is recommended not to borrow more than you can repay. Ensure you apply for a sum you can return within a loan term.

Disadvantages of Using Personal Loans for a Car Purchase

Although a personal loan may be an excellent way to finance your car purchase, it has several drawbacks.

Higher Interest Rates

Although personal loans are a cheaper borrowing option than many others, they still come with higher interest rates than auto loans. You need to pay attention to these additional charges to ensure you can afford to repay your debt.

Higher Monthly Payments

Personal loans generally have shorter loan terms than auto loans. Therefore, you need to make higher monthly payments to repay the money. Although it allows you to get rid of your outstanding debt faster, making high payments is not always convenient.

Hard Credit Checks

Due to the lack of collateral, borrowing personal loans is often more complicated than car loans. Lenders have stricter requirements and perform hard credit inquiries to ensure a borrower can repay the debt on time. Although many financial institutions offer bad credit personal loans, their interest rates often reach 36%, complicating loan repayment.

Does a Credit Score Impact on a Personal Car Loan?

A credit score is one of the main factors affecting your personal car loan. It determines your loan term, interest rates, and approval chance for the necessary loan amount. The higher your credit, the more extended your loan term and the lower your interest rates. A good credit borrower is more likely to get the sum they need.
If your credit history is unfair, it may be necessary to work on improving to obtain a personal loan on the most favorable terms.

Comparing Personal Loans and Auto Loans for Car Financing

Both personal loans and auto loans can be used for car financing. A personal loan is an installment loan that can be taken for many purposes. It allows you not only to purchase a vehicle but also to cover medical bills, vacation costs, unexpected expenses, or pay for your home improvement and car repairs. Personal loans are typically unsecured, making their lending more risky for providers. Therefore, they access borrowers’ credit reports to check their creditworthiness. They charge higher interest rates and offer shorter loan terms, which is often inconvenient.

Auto loans are installment loans, but unlike personal loans, they can be used only for car purchasing. These are secured loans, requiring the vehicle you buy as collateral. Although this borrowing option is cheaper and usually provides extended loan terms, it may result in losing your car in the case of late or missed payments.

Personal Loans

• Can be used for various purposes;
• Higher interest rates and shorter loan terms;
• No down payment is required;
• No collateral is required.

Car Loans

• Can be borrowed only for auto purchasing;
• Lower interest rates and extended loan terms;
• A down payment may be required;
• Collateral is required.

The Bottom Line

While not every person wants to use auto loans to finance their vehicle, personal loans come to the rescue. How to get a personal loan for a car? The loan process is simpler than it may seem. You can borrow the money from a bank, credit union, or an online lender. Although unsecured personal loans often come with higher interest charges, they protect borrowers from losing their vehicle in the case of default.