When you’re in the market for a used or new car, you’d think picking the right car would be the hard part. But, for many buyers, the headache starts long before they get behind the wheel for a test drive. Car loans can get complicated fast, especially when dealerships set strict rules or your credit history isn’t perfect.
You might’ve found the dream ride, only to find it doesn’t qualify for traditional auto financing. Or, if your credit score is low, you’ve faced limits, delays, or turnaround rejections. This is often the point where people start looking at personal loans instead – a simpler way to get the funds without being tied to dealership criteria or specific vehicle conditions.
Can you get a personal loan for a car?
A personal loan can be used to buy a car, and many people choose this route when they want more control over how they shop. Instead of the lender paying a dealership directly, the money is deposited into your checking account. You can then use it to purchase the vehicle you want from a dealership, a private seller, or even someone you know.
Because the loan isn’t tied to the car itself, you’re not limited by strict age, mileage, or condition requirements. This opens up more options, especially if you’re looking at older models or private listings that traditional auto financing won’t cover.
Personal Loan vs. Auto Loan: What’s the difference?
| Feature | Personal Loan | Auto Loan |
| Type of Loan | Unsecured Personal Loan (no collateral) | Secured Loan (the car is collateral on the loan) |
| Where You Can Buy | Dealerships, private sellers, online marketplaces, friends or family | Mostly dealerships; limited private-party options |
| Vehicle Requirements | No limits on age, mileage, or condition | Must meet lender guidelines (newer, certain mileage, clean title) |
| Approval Factors | Income, banking history, overall ability to repay | Credit score, vehicle value, loan-to-value ratio |
| Loan Interest Rates | Often higher due to no collateral | Usually lower because the car secures the loan |
| Risk to the Buyer | The car isn’t repossessed if you miss payments | The lender can repossess your car if you default on the loan |
| Speed of Funding | Fast payout; money goes straight to your bank account¹ | It can take longer due to paperwork and vehicle checks |
| Flexibility | High – spend funds how and where you choose | Lower – tied to the specific car and seller |
| Best For | Buyers who want freedom, fast access to funds, or are purchasing older used cars/private-sale cars | Buyers with strong credit who are buying newer vehicles |
When Getting an Auto Loan is the Best Choice for a Car Purchase
An auto loan can work well for buyers who want a newer vehicle and plan to buy through a dealership. Because these loans are secured by the car, lenders often have lower interest rates and longer repayment terms, which can help reduce monthly payments.
Auto loans tend to be a good fit when:
- You’re buying a newer model. Lenders prefer vehicles with lower mileage, clean titles, and strong resale value.
- Your credit is in good shape. Better credit often unlocks more competitive auto finance rates.
- You want the lowest possible monthly payment. Longer terms and secured financing usually make this easier.
- You’re comfortable using your vehicle as collateral. Missed payments can lead to repossession.
- You drive within typical usage limits. Some lenders place mileage caps on financed cars. If you only drive short distances, this isn’t an issue, but for long commutes, business travel, or high-mileage lifestyles, these limits can be restrictive and can affect approval, or there might be a fee for miles over their allowance.
When it Makes Sense to Use a Personal Loan to Buy a Car
A personal loan can work well when:
- You’re buying from a private seller. Many great deals never make it to dealerships. A personal loan lets you purchase from online marketplaces, friends, family, or local listings without any lender restrictions.
- The car is older or has higher mileage. Dealership financing often excludes older vehicles, high-mileage cars, or anything outside strict condition guidelines. Personal loans don’t come with these limits.
- You want a quick approval process. Personal loans are usually faster to secure, with simple forms and straightforward terms.
- You prefer not to use the car as collateral. Your vehicle won’t be at risk of repossession if you fall behind, which gives many buyers peace of mind.
- Your credit history makes auto financing harder. Buyers with lower credit scores often face tighter limits or outright denial on auto loans. A personal loan can be more flexible and accessible.
- You want to pay in cash. Having cash in hand can make private sellers more willing to negotiate and speed up the sale.
How to Use a Personal Loan to Finance a New or Used Car
Using a personal loan to buy a car is straightforward. Once you understand the steps, the process feels no different from paying with cash.
1. Work Out How Much You Actually Need
Start by checking the price of the car you want and adding any extras like tax, registration, and insurance. If you’re planning to make a down payment with savings, factor that in. A larger upfront amount will reduce how much you need to borrow and help you qualify for better terms and a lower loan payment.
Many buyers use a loan calculator to get a clearer picture of what their monthly costs will look like before applying. Once you have your numbers set, you’ll be ready to look for a loan offer that fits your budget.
2. Apply for an Unsecured Personal Loan
Submit a quick online application through a trusted platform. You’ll share basic details about your income, bank account, and how much you want to borrow. This part usually takes only a few minutes.
3. Review Your Loan Terms
If you’re matched with a lender, check the repayment schedule, monthly payment amount, and total cost before you move forward. Make sure the payment fits your monthly budget comfortably.
4. Receive Your Car Loan Funds
Once approved, the money goes straight into your bank account. There’s no waiting on a dealership finance department or extra paperwork tied to the vehicle.
Quick Note: If you take out the loan and then wait a while before buying a car, your repayment schedule will start immediately. That means you could be making payments before you’ve actually purchased the vehicle, so it’s best to shop soon after the funds arrive.
5. Pay the Seller
Because the funds arrive as cash in your account, you can pay a dealership, private seller, or online listing directly. This can give you more room to negotiate.
6. Complete the Title & Registration
If you’re buying a used car from a private seller, make sure you have the signed title and any required state forms. If it’s through a dealership, they’ll typically handle the paperwork.
7. Start Your Monthly Payments
Once everything is signed and the car is yours, manage your loan repayment plan until the loan is fully paid off.
Ready to buy your car with a personal loan?
If you’ve already been scrolling through Autotrader or local listings and spotted the kind of car you want, the next step is making sure you have the cash ready to secure it. Good deals move fast (especially used cars), and having your financing in place can be the difference between getting the keys or watching someone else snap it up.
Yup Loans helps you get there by connecting you with lenders who look at your whole situation, not just your credit score. The form only takes a few minutes¹, and if approved, you could receive your funds as soon as the next business day*. With the financing sorted, you’re free to make your move on the car you’ve already had your eye on. Request funds today to get started.
FAQs About Using a Personal Loan to Buy a Car
Can you use a personal loan to buy a car if you’ve been rejected for a traditional auto loan?
If your auto loan application is rejected, a personal loan can be a workable alternative. Auto lenders often have strict rules around credit scores, vehicle age, mileage, and loan-to-value ratios, which can block approval.
Personal loans don’t rely on the car as collateral, so the decision is based more on your income, employment stability, and recent banking history. Many borrowers who can’t get approved for a traditional auto loan are still able to move forward with a personal loan through Yup Loans³.
Is it cheaper to finance a car with a personal loan or an auto loan?
Auto loans can come with lower rates because the car is used as collateral. A personal loan costs more in some cases, but it works well for older cars, private-sale vehicles, or situations where an auto lender won’t approve the purchase.
Is it possible to buy a used car from a private seller with a personal loan?
Being able to purchase a car from a private seller is one of the biggest advantages of taking out a personal loan. You can buy from private sellers on platforms like Autotrader, Craigslist, Facebook Marketplace, and CarGurus without any lender restrictions.
How much can I borrow with a personal loan?
Loan amounts vary by lender, but many personal loans range from a few hundred dollars up to several thousand. The amount you qualify for depends on your income and overall financial situation.
With Yup Loans, most lenders offer personal loan amounts ranging from $250 up to $3,000, depending on your income, banking history, and ability to repay.
Will using a personal loan affect my credit score?
Submitting your initial request through Yup Loans for a personal loan uses a soft check that doesn’t affect your score. If you choose to accept an offer, the lender might perform a hard check, which could cause a small temporary dip.
Can I use a personal loan to buy a car in another state?
Since the personal loan isn’t linked to the vehicle, you can use the funds to buy a car out of state and handle the registration when you bring it home.
Are personal loans legal in every state?
Personal loans are legal across the U.S., but terms and lender rules can vary by state. Yup Loans only works with lenders who follow state and federal lending laws.