Car loans and personal loans can be both used for buying cars. Where Else car loans are strictly for purchasing a vehicle, you can literally use personal loans for whatever purpose. Car loans have lower APRs of 3%-7% compared to personal loans, whose APR can go up to 36% depending on factors such as the lender's terms and your credit scores.
Furthermore, auto loan amounts are higher compared to the amount you can get when you apply for a personal loan. Thus, the personal loan funds may not be enough to purchase a car.
What Are the Differences Between Car Loans and Personal Loans?
Personal loans and car loans differ from each other in many ways. From the lending requirements, interest rates, loan amounts, purpose, and repayment terms. For instance, the average personal loan amount is about $11,700; for a car loan, you get $32,187 to purchase a new car or $20,137 for a used vehicle. Moreover, you do not need collateral to qualify for a personal loan.
However, car loans can only be used for purchasing a vehicle, while personal loans can be used for whatever purpose.
The table below summarizes the key differences between these two types of credit.
| Category | Personal Loan | Car Loan |
| Used for | Almost everything | Purchase of car only |
| APR | Between 6% and 36% | 3% - 7% |
| repayment duration | 1-7 years | 2 - 6 years |
| Loan amount | $1,000 to $100,000 | Depends on the value of the car |
| Average Loan Size | $11,700 |
$32,187 for new cars $20,137 for a second-hand one |
| Collateral | Not needed | Car as collateral |
Car loans are perfect for applicants who want to buy a vehicle at low interest and are comfortable with the monthly loan repayments. However, there is always the risk of losing the car to the lender if you default on the loan.
Although you can still buy a car with a personal loan, the interest rates are quite high. The loan amount may also not be enough to purchase a car.
Conclusion
Personal loans and car loans can be used to purchase a vehicle. But, the personal loan terms could restrict you on the type of car to purchase. Compare the differences between the two loans highlighted above and choose the most suitable credit option. Candidates have the final say on whether to use a personal or car loan to purchase their dream automobile.