Personal loans are unsecured loans that can be used for many different purposes, including buying a car. Car loans are secured against the vehicle you’re going to purchase, so the lender can repossess the car if you fail to pay off the loan.

So, should you finance your vehicle purchase with a personal loan or a car loan? The choice could have a big impact on how much you pay for your new vehicle.

Jerry,

the and licensed

car insurance

broker, can help you find a great car loan and the lowest rate on your insurance.

Read on to learn the difference between a personal loan and a car loan, the pros and cons of each, and everything you need to know about getting a loan for your car.

Personal loans vs. car loans for financing a car

Major differences between personal vs.

car loans

include loan amounts, annual percentage rates, and down payments.

	Personal loan	Car loan
Typical loan amount	$1,000–$40,000	$5,000–$100,000
Typical APR range	6–36%	3–20%
Typical repayment term	2–7 years	3–7 years
Collateral	Loan may be unsecured	Loan is secured by your car
Down payment	Not required	10–20% typically required
Type of car you can finance	Any type of car	Lender may set restrictions

Key Takeaway Personal loans tend to be unsecured and have higher APRs, while car loans usually use your car as collateral and offer lower interest rates.

Why you might want to get a personal loan

The advantages of a personal loan include:

No down payment

Fewer restrictions

Less risk of repossession

A personal loan might be ideal if you’re trying to purchase an older car or a fixer-upper since you can use the funds to cover any purchase.

The disadvantages of a personal loan include:

Higher average APR

High credit score requirement

Higher interest rates make personal loans a much more expensive way to finance a car purchase than auto loans. They can also be harder to get because you typically need a very good credit score (670 or above) to qualify.

MORE:

How to get antique car loans

Why you might want to get a car loan

The advantages of a car loan include:

Lower APR

More flexible payment terms

Greater affordability

Making a down payment on your car loan will get you a lower rate and it’s easier to find a car loan than a personal line of credit if your score is on the low side.

If you have the money for

a good down payment

, a car loan is the less expensive financing option.

The disadvantages of a car loan include:

More restrictions on the vehicle you can buy

Risk of repossession if you fail to keep up with payments

Key Takeaway Car loans are more affordable than personal loans in the long run—and easier to qualify for if your credit score is below 670.

MORE:

How to reduce car payments without refinancing your car loan

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Getting a personal loan or a car loan

Whether you’re getting a personal or car loan, you’ll need to follow the following steps:

Check your credit. Knowing your credit score will help you figure out what kind of loan you might qualify for. If your score is below 670, you’re probably better off with a car loan.

Compare lenders. The best way to know that you’re getting the right loan is by comparing the rates, terms, and features you’ll get from different lenders.

Pre-qualify or get pre-approved. Some lenders offer pre-qualification, which allows you to see your rate without a hard credit pull. Other lenders offer pre-approval, which boosts your negotiating position but can impact your credit score.

Finalize your offer. Once you’ve chosen your lender, read through the loan documents carefully to make sure you understand the terms of your loan before you sign.

MORE: Does financing a car affect insurance rates?

Finding a low rate on your car loan

If you choose to pay for your new vehicle with financing instead of a personal loan, you’ll need to compare rates from various lenders.

Get expert assistance by downloading

Jerry

, the super app that helps you save time and money on your car expenses, including loans. Jerry will compare loan rates from different lenders to find you the best deal.

While you’re working out your financing, you can also shop for a new low rate on your

car insurance

. Jerry will handle all the paperwork so that all you have to do is enjoy your savings!