Can you use a personal loan to buy a car?

If you need to buy a car but can't secure a traditional auto loan, a personal loan could be a viable alternative. Personal loans are typically unsecured, meaning they don't require collateral like your car. This can be advantageous because if you default on the loan, you won't lose your vehicle. However, personal loans often come with higher interest rates and shorter repayment terms compared to auto loans.

In the second quarter of 2026, the average interest rate for used cars was 19.10% according to Experian data. On the other hand, new cars had an average interest rate of 13.52%. Personal loan rates can reach as high as 36% for subprime borrowers. Nevertheless, if your only option for financing a vehicle is a subprime lender, a personal loan could be a better choice than dealing with a less-reputable lender.

Personal loans can be used for various purposes, including buying a car, and might sometimes be cheaper than an auto loan. Some lenders offer prequalification without impacting your credit score, allowing you to compare rates from multiple lenders. Keep in mind that personal loans tend to have lower loan amounts and may not cover the full cost of your desired car, unlike auto loans.

Additionally, personal loans lack collateral, which generally results in higher interest rates but the added benefit of not losing your car if you default on the loan.