| Loan Type | Credit Score | Typical Rate |
|---|---|---|
| New Car Loan | 720+ | 5.0% – 7.0% |
| New Car Loan | 660-719 | 7.0% – 10.0% |
| Used Car Loan | 720+ | 6.5% – 9.0% |
| Used Car Loan | 660-719 | 9.0% – 14.0% |
| Personal Loan | 720+ | 8.0% – 13.0% |
| Personal Loan | 660-719 | 13.0% – 20.0% |
For most borrowers with good credit, auto loans have lower rates. But if you're buying an older used car or making a private purchase, a personal loan may be your only option.
| Loan Type | Rate | Term | Monthly | Total Interest |
|---|---|---|---|---|
| Auto Loan (new) | 6.5% | 60 mo | $391 | $3,461 |
| Auto Loan (used) | 8.5% | 60 mo | $410 | $4,584 |
| Personal Loan | 11.0% | 60 mo | $435 | $6,100 |
| Personal Loan | 15.0% | 60 mo | $476 | $8,540 |
A personal loan at 11% costs about $2,600 more in interest than an auto loan at 6.5% on the same $20,000 over 5 years. That's significant — but the personal loan has no collateral risk.
Dealers make money on financing. The quoted monthly payment often hides a high interest rate. Always:
Dealers push 72 and 84-month terms because they make the monthly payment look affordable. But the true cost is enormous:
| Term | Rate | Monthly ($25k loan) | Total Interest |
|---|---|---|---|
| 36 months | 6.0% | $761 | $2,389 |
| 48 months | 6.5% | $594 | $3,510 |
| 60 months | 7.0% | $495 | $4,752 |
| 72 months | 7.5% | $433 | $6,208 |
| 84 months | 8.0% | $391 | $7,835 |
The difference between 36 months and 84 months: $5,446 more in interest — for the exact same car. And with an 84-month term, you'll likely be underwater (owe more than the car is worth) for years.
See your monthly payment and total interest for both auto loans and personal loans.
The main difference between a personal loan vs auto loan is collateral. An auto loan uses your car as collateral, which means lower interest rates (5-9%) but risk of repossession if you miss payments. A personal loan is unsecured — no collateral — so rates are higher (8-20%) but you own the car outright from day one.
For bad credit borrowers, auto loans are generally easier to get approved because the car serves as collateral, reducing lender risk. Personal loans with bad credit often come with very high rates (25-36%+). If your credit score is below 600, an auto loan or a secured personal loan is usually the better option.
For most car purchases from dealerships, an auto loan is better because rates are lower. Use a personal loan when buying from a private seller, purchasing an older vehicle that doesn't qualify for auto financing, or when you want to own the car outright without it being used as collateral.
Yes, you can use a personal loan to buy a car. There are no restrictions on using personal loan funds for vehicle purchases. This is especially useful for private party sales where auto lenders may not participate, or for older vehicles that don't qualify for traditional auto loans.
Car loans typically have lower interest rates than personal loans because the vehicle serves as collateral, reducing risk for the lender. In 2025, new car loan rates for good credit start around 5-7%, while personal loans for the same borrower might be 8-13%. The gap widens for borrowers with fair credit.
With a car loan, the lender can repossess the vehicle if you stop making payments. With a personal loan, the lender cannot take your car (it's unsecured), but they can sue you for the debt, damage your credit score, and send the debt to collections. Both have serious consequences — but the car loan has the immediate risk of losing your vehicle.
Yes, absolutely. Getting pre-approved from a bank or credit union before visiting a dealer gives you a baseline rate to compare against dealer financing. Dealers may offer competitive financing to earn your business, but you'll have no leverage without a competing offer. Pre-approval also gives you clarity on your budget before you start shopping.
Your credit score dramatically changes which option is better. Here's the full picture:
| Credit Score | Auto Loan Rate | Personal Loan Rate | Better Option |
|---|---|---|---|
| 760+ | 5.0% | 8.0% | Auto Loan |
| 720-759 | 6.0% | 10.0% | Auto Loan |
| 680-719 | 8.0% | 13.0% | Auto Loan |
| 640-679 | 11.0% | 18.0% | Auto Loan |
| 600-639 | 15.0% | 25.0% | Auto Loan |
| Below 600 | Hard to get | 30%+ | Neither — improve score first |
Here's exactly what $25,000 costs monthly under different scenarios:
| Loan Type | Rate | 36 mo | 48 mo | 60 mo | Total Interest (60mo) |
|---|---|---|---|---|---|
| Auto Loan (excellent credit) | 5.5% | $755 | $581 | $479 | $3,740 |
| Auto Loan (good credit) | 7.5% | $778 | $604 | $501 | $5,060 |
| Personal Loan (excellent credit) | 9.0% | $795 | $622 | $519 | $6,140 |
| Personal Loan (good credit) | 14.0% | $855 | $683 | $581 | $9,860 |
Auto loans require you to carry full coverage insurance (collision + comprehensive) as long as the loan is active. Personal loans have no insurance requirements — you can carry minimum liability only, which can save $500-1,500/year on older vehicles.
Personal loans often fund faster — sometimes same day or next day. Auto loans through dealerships can be approved in hours but may take days if going through a bank. Credit union auto loans typically take 1-3 business days.
Most auto loans have no prepayment penalties. Personal loans vary — always check before signing. If you plan to pay off the loan early, make sure there's no penalty fee.
For the vast majority of car buyers purchasing from a dealership with decent credit, an auto loan is the better choice due to lower interest rates. The savings can be $2,000-6,000+ over the life of the loan.
However, a personal loan wins when you're buying privately, purchasing an older or cheaper vehicle, or when you value not having your car serve as collateral.
Always calculate the total cost of both options before deciding — not just the monthly payment.