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Can You Use a Personal Loan to Buy a Car?

Yes, it is possible to buy a car with a personal loan. However, because personal loan interest rates tend to be higher than auto loan rates, buying a car with a personal loan is not always an ideal solution. More often than not, a traditional auto loan will be the far better option.
Credit Union of Southern California (CU SoCal) is a leading lender providing auto loans and personal loans to Southern Californians for more than 60 years.
Call CU SoCal at 866.287.6225 to schedule a free no-obligation personal loan consultation, or apply online today!

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What are Personal Loans?

A personal loan is a type of loan that provides the borrower with money that can be used for any personal expense, such as home renovations, paying off debt or medical bills, a wedding, and pretty much any other payment need you can think of. Many people choose to make large purchases, such as new appliances or furniture, using a personal loan because the interest rate often is lower than the interest rate charge by credit cards. While personal loans aren’t typically used for buying a car, there may be times when it makes sense to do so.
Find out more about personal loans by reading, “What are Personal Loans?” 

Personal Loans vs. Auto Loans

Unsecured and Secured Loans: Personal loans can be unsecured or secured. An unsecured loan doesn’t require collateral (or security) to secure the loan. No collateral is needed in order to get an unsecured personal loan. Some lenders, including CU SoCal offer a secured personal loan, but this could come with a higher interest rate than you’d get from a car dealer.
Auto loans are always secured. A secured loan requires the borrower to pledge an asset such as property or a car to “secure” the loan. If the borrower does not pay the loan in full the lender can takes possession of the asset that was used as collateral.
Interest Rate: Because auto loans are secured, lenders offer lower interest rates because if the borrower defaults on the payment the lender can take back the car. With no security backing an unsecured personal loan, the lender charges a higher interest rate to compensate for the risk of the loan not being paid in full.
Down Payment: Personal loans do not require a down payment. Most car dealerships require a down payment on the purchase, unless there happens to be a zero money down promotion. When purchasing a car from a dealership it’s a good idea to be ready to put money down. This could get you a lower interest rate and you’ll pay less in interest over the life of the loan.
Loan Term: Loan terms (the length of the loan) will vary on auto loans and personal loans. Auto loans tend to come with a shorter term, from 4 to 7 years. Personal loans can range from 4 to 10 years, or feature a revolving option that keep an open line of credit.

When it Makes Sense to Buy a Car Using a Personal Loan

While getting a personal loan for a new car purchase isn’t the best option, it could make sense in these three scenarios:
  1. You're Buying from a Private Seller: Purchasing a used car from a private seller means you’ll need cash in-hand to make the purchase. Because a personal loan can be used any way you want you may take out a loan that will cover the cost of the car purchase, with money left over to do home renovations, purchase furniture or any other items you wouldn’t be able to afford without the loan. The higher interest rate you’ll pay on the personal loan may be acceptable because of the flexibility you get. Buying a used car from a private seller will likely cost less than buying used from a dealership, and you will save money by not paying dealer fees.
  2. You Don't Want Full Coverage Insurance: According to, auto insurance requirements for financed vehicles include a full coverage policy. Minimum insurance for a financed car provides liability, collision, and comprehensive coverage.
  3. You're Buying a Car that Needs Work: When a car needs a substantial amount of work or restoration, credit unions and banks won’t provide an auto loan for the purchase, as it represents too much risk should you default on payments. For this reason, a personal loan could be ideal.

Why You Shouldn't Use a Personal Loan to Buy a Car

Auto loans are easy to find, apply for, and get approved for. Car dealers compete for consumer business by offering a range of incentives, including promotional loan interest rates, zero-money-down, and other perks to close the sale. For these reasons, it will likely save you money to use an auto loan rather than a personal loan to buy a car.
Here are top three reasons it doesn't make sense to buy a car using a personal loan:
  1. Interest Rates: Personal loan interest rates tend to be higher than auto loan rates. Paying a percentage or two more each month in interest can end up costing you thousands of dollars more per month as you pay off the loan.
  2.  Shorter Repayment Period: Some personal loan lenders require a shorter term (length) to repay a personal loan. Auto loans typically come with a long term, understanding that the car buyer will need more time to repay a large car loan and smaller monthly payments, so that the loan is affordable. This factor can vary greatly depending on the lender, so be sure to compare loan terms.
  3.  Smaller Limits: Personal loans come with a lower lending limit, while auto loans provide for the full amount that you need to complete the purchase. For example, if you want to purchase a $40,000 vehicle but the personal loan you qualify for has a loan limit of $20,000, you’ll need to come up with more money to make the purchase. With auto loans, the better your credit, income, and debt-to-income ratio, the greater the loan amount you will likely be approved for.

Where to Get a Personal Loan

There are three main options for getting a personal loan:
Banks: Traditional banks tend to have higher credit score and income requirements than credit unions. If you happen to have bad credit, getting a good rate on a personal loan from a bank could be challenging. If you need the money in a rush, banks may take longer to release funds, so ask how long the approval and funding process will take before you apply.
Credit Unions: As a not-for-profit organization, credit unions reinvest profits back into the organization, so Members benefit from lower interest rates loans. Typically, there are no fees or lower fees than you’d find at a bank. CU SoCal does not charge fees on personal loans.
Online Lenders: While numerous online lenders offer personal loans, they can’t offer the personalized customer service of a credit union or local bank. They may also have higher interest rates. Be sure to compare rates and fully understand the terms of the loan.

For more details, read “Where Can I Get a Personal Loan at a Good Rate?

CU SoCal Personal Loans

Here are some of the reasons why Members love CU SoCal personal loans: 
  • Amounts available from $500 to $30,000
  • No Repayment Penalty
  • No Application Fee
  • No Funding Fee
  • Terms Up To 120 Months For Lowest Possible Repayments

Why Savvy Consumers Choose CU SoCal

For over 60 years, Credit Union of Southern California has been proudly serving the Southern California community. We provide our Members with checking and savings accounts, personal loans, auto loans, and other loan products with quick pre-approvals, no application or funding fees, and other unique advantages.
We are known throughout the area for our excellent service and we are proud to be serving the community where we work and live.

Apply for a CU SoCal Personal Loan Today!

Please give us a call today at 866.287.6225 to schedule a no-obligation consultation with one of our loan representatives.
Get Started on Your Auto Loan!

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Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.


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