Personal Loan vs Auto Loan: What’s the Difference?

If you’re looking to buy a car but don’t have extra cash on hand to fund an outright purchase, you may be considering taking out a loan. Both personal loans and auto loans give you access to the money you need, but they differ in how they work, what they’re used for and the repayment terms. Understanding these differences could help you make an informed decision about which type of loan is right for your purchase.

Let’s break down the key differences between personal loans and auto loans, so you can decide which one best fit your needs and your overall financial situation.

What is a personal loan?

A personal loan is money you borrow from a lender, bank or credit union. You get the full amount all at once as a lump sum and then pay it back in monthly installments. Each monthly installment payment includes a portion of the loan principal, which is the amount you borrowed, and interest, which is the cost of borrowing from a lender. Most personal loans have fixed interest rates, so as long as you pay on time, you should have predictable monthly payments until the loan is fully paid off.

There are two types of personal loans: secured and unsecured. A secured loan uses something valuable you possess, like a vehicle (like a motorcycle, boat or trailer) as collateral to back the loan. If you don’t pay back the loan, the lender has the right to take the collateral to recover the remaining amount owed. Providing collateral can boost your borrowing power, potentially improving your approval odds or helping you qualify for a higher loan amount or a lower interest rate. A secured loan may also be a good option if you have less-than-perfect credit or if your application for an unsecured loan was declined.

Alternatively, an unsecured loan doesn’t require any collateral. Instead, the lender looks at factors like your credit score, credit history, and income to decide if you qualify.

You could use a personal loan for many different needs, including:

• Consolidating debt
• Covering moving fees
• Making home repairs
• Paying for a wedding
• Funding a large purchase

To get a personal loan, you’ll typically need to provide several documents. Although specific requirements may vary by lender, required documents may include:¹

• Proof of identity (such as a driver’s license, state-issued ID card, passport or available third-party verification service)
• Proof of address (such as a driver’s license with current address, utility bill or signed lease)
• Proof of income (such as pay stubs or tax returns)
• Bank account information

What is an auto loan?

An auto purchase loan is used specifically to buy a new or pre-owned vehicle. Auto purchase loans are often secured.² Once your purchase is approved, the purchased vehicle is typically used as collateral to secure the loan while you repay the lender. This means that if you fail to repay the loan, the lender could take the vehicle. Auto loan repayments are typically made in monthly installments, including principal and interest.

Dealerships often provide financing, meaning they arrange loans for customers to buy vehicles. Auto purchase loans can also be financed through lenders, banks, and credit unions. OneMain works with many dealers to offer auto purchase loans and works with a wide range of customers, from people with stronger credit histories to more limited credit histories.

What’s the difference between a personal loan and an auto loan?

There are some key differences between a personal loan and an auto loan, highlighted in the chart below.

Feature	Personal loan	Auto purchase loan
Loan purpose	Used for many expenses	Used for buying a vehicle
Loan amount	Offers a range of borrowing amounts based on how much you request and qualify for	Based on the vehicle price, minus your down payment, and limited by the amount you qualify for
Average loan amount in 2025	$6,4873	$43,759 for new cars, $29,987 for used cars4
Down payment	Not required	Often, but not always required
Application process	Quick, ranging from 1 to 3 days. Can be online, by phone or in person depending on the lender.5	Timing may vary, depending on the lender. In general, dealers and some lenders can often process same-day loan applications.6
Requirements	Based on factors like credit score, income and value of collateral, if applicable	Based on factors like credit score, income and value of collateral (the vehicle you’re purchasing)
Loan terms	1 to 7 years7	2 to 8 years8
Where to get	Lender, bank or credit union	Lender, bank, credit union or auto dealership

Which loan is right for you?

Finding the right loan for you will depend on the type of vehicle you are looking to buy, as well as your overall finances and priorities.

When to consider an auto loan instead of a personal loan

In most circumstances, using an auto loan to buy a vehicle will make more financial sense than using a personal loan. Because auto loans tend to have lower interest rates and longer terms than personal loans, they’re the typical choice for financing a vehicle purchase.⁹

When to consider a personal loan instead of an auto loan

In some cases, you might consider a personal loan instead of an auto loan, but keep in mind that you’ll likely pay more interest over the life of the loan. If any of the following applies to you, you might want to look into a personal loan:

• You don’t want to make a down payment: An auto purchase loan generally requires a down payment. If you’d rather not put money down, you might be able to get a personal loan to cover the full cost of the vehicle. Depending on the kind of car you’re buying, however, you may need to meet strict credit and income requirements to qualify for a personal loan large enough to purchase it.¹⁰
• You don’t want to use your car as collateral: When you use your car as collateral, the lender puts a lien on it — a legal claim of ownership. The lien means the lender can repossess the vehicle if you don’t make payments, and it may make the car more challenging to sell before you’ve paid off the loan. If you’d rather avoid a lien on your car, you could use an unsecured personal loan instead, but the interest rate will likely be higher, making the loan more expensive in the long term.¹¹
• You’re buying a used vehicle: If the vehicle you’re buying is old or has a lot of miles on it, an auto loan lender may not agree to finance it. Because you can use a personal loan for almost anything, you may still be able to get a personal loan to cover the purchase.¹²

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Cruise toward the right choice

No matter what you choose, the best loan is the one that fits your budget and goals. Take the time to compare lenders, look at the interest rates and loan terms, and think about your needs. Whether you go with a personal loan or an auto loan, doing your research will help you feel confident as you take the next step.

Sources:

1 https://www.bankrate.com/loans/personal-loans/documents-required-for-personal-loan/
2 https://www.bankrate.com/loans/auto-loans/secured-auto-loans/
3 https://finance.yahoo.com/news/interest-rates-2023-facts-statistics-233525368.html
4 https://www.edmunds.com/industry/press/more-than-1-in-5-new-car-shoppers-committed-to-1000-monthly-payments-in-q4-2025-according-to-edmunds.html
5 https://www.nerdwallet.com/article/loans/personal-loans/personal-loan-term-length
6 https://www.bankrate.com/loans/auto-loans/what-is-an-auto-loan/
7,8,9 https://www.experian.com/blogs/ask-experian/personal-loan-vs-auto-loan/
10,11,12 https://www.nerdwallet.com/personal-loans/learn/personal-loan-vs-car-loan