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Personal Loan vs. Auto Loan: What’s the Difference?
Auto loans are for new and used vehicle purchases. Personal loans can be used for almost any large expense.
Annie Millerbernd Lead Writer | Personal loans, "buy now, pay later" loans, cash advance apps
Annie Millerbernd is a NerdWallet authority on personal loans. Before joining NerdWallet in 2019, she worked as a news reporter in California and Texas, and as a digital content specialist at USAA. Annie's work has been cited by the Northwestern University Law Review and . Her work has been featured in The Associated Press, USA Today and MarketWatch. She’s also been quoted in New York magazine and appeared on NerdWallet's "Smart Money" podcast as well as local TV and radio. She is based in Austin, Texas.
Jackie Veling Lead Writer | Buy now, pay later loans, debt consolidation, personal loans
Jackie Veling covers personal loans for NerdWallet. Her work has been featured in The Associated Press, MarketWatch, MSN, Nasdaq.com, the Los Angeles Times and Yahoo Finance. Her work has also been cited by the Harvard Kennedy School. Prior to that, she ran a freelance writing and editing business, where she partnered with a wide range of clients, including U.S. Bank and Under Armour. She graduated from Indiana University with a bachelor’s degree in journalism.
Kim Lowe is a lead assigning editor on NerdWallet's loans team. She covers consumer borrowing, including topics like personal loans, buy now, pay later and cash advance apps. She joined NerdWallet in 2016 after 15 years at MSN.com, where she held various content roles including editor-in-chief of the health and food sections. Kim started her career as a writer for print and web publications that covered the mortgage, supermarket and restaurant industries. Kim earned a bachelor's degree in journalism from the University of Iowa and a Master of Business Administration from the University of Washington. She works from her home near Portland, Oregon.
Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
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Personal loans can pay for just about anything, while auto loans are used specifically to finance a new or used car purchase. Because personal loans are unsecured, they usually have higher rates than auto loans, which are secured by your vehicle.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
Personal loans are best for large, one-time expenses like debt consolidation or home improvement projects. You can use a personal loan to finance a new or used car, but an auto loan is likely the cheaper option.
For most borrowers, a personal loan is not better than an auto loan because auto loans are the cheapest way to finance a new or used car.
For example, let’s say you have fair credit (a 630 credit score or higher) and are able to get an 8% annual percentage rate (APR) on a $20,000 auto loan with a repayment term of five years. The same amount and repayment term could come with a 20% APR on a personal loan, because the funds are unsecured.
For the auto loan, your monthly payment would be about $406 and you’d pay a total of $4,332 in interest. For the personal loan, your monthly payment would be about $530 and you’d pay a total of $11,793 in interest.
One exception to choosing an auto loan over a personal loan would be if you don't want to make a down payment on the vehicle and would accept a higher rate in exchange for unsecured funds. Though some lenders and dealerships may offer auto loans without a down payment, you’ll get a lower rate on your auto loan if you make one.
Also, unlike with auto loans, a personal loan lender won’t place a lien on your car when you get a personal loan, so you’ll have your title in case you want to sell before you’ve paid off the car.
However, because of the lower interest rates, an auto loan is still the smartest choice for most car shoppers.
Personal loan vs. auto loan rates
Annual percentage rates on personal loans are typically higher than auto loan rates because the lender takes on more risk by letting you borrow without the leverage of your vehicle.
With an auto loan, the type of vehicle you buy also affects your rate: Loans for used cars often have higher APRs than those for new cars.
With both types of loans, your credit profile, income and existing debts influence the rate you receive. Borrowers with good to excellent credit (690 credit score or higher), steady income and little existing debt qualify for the lowest rates.
Personal loan vs. auto loan terms
Repayment terms on personal loans and auto loans depend on the lender, but both types of loans generally come with repayment options ranging from two to seven years.
Longer repayment terms mean you’ll pay more in interest over the lifetime of the loan. For auto loans, NerdWallet recommends keeping your repayment term at 60 months or lower for a new car and 36 months or lower for a used car.
Compare lenders: Before moving forward with a personal loan or auto loan, compare rates, terms and loan features. Calculate monthly payments using a personal loan calculator or an auto loan calculator to determine what you can afford.
Pre-qualify or get preapproved: Pre-qualifying for a personal loan will let you see what rate and loan amount a lender can offer you without impacting your credit score. You can pre-qualify with NerdWallet to see rates from multiple online lenders. Pre-qualification is available through some auto lenders as well. Others offer preapproval, which requires a hard credit pull, but it could result in a rate that’s closer to your final offer.
Finalize your offer: Read your personal or auto loan contract carefully before accepting the offer to be sure you understand the terms.
NerdWallet's ratings are determined by our editorial team. The scoring formulas take into account multiple data points for each financial product and service.
Among online lenders, SoFi stands out for same-day approval and fast funding, a mobile app to manage loan payments, plus online financial tools and calculators.
