You can certainly use a personal installment loan to buy a vehicle. And in some cases, it would make more sense.
It is typically recommended to go for a personal installment loan rather than an auto loan if you’re credit is not good enough to qualify for the latter or if an auto loan is not an option for the vehicle that you have chosen.
However, you would have to consider a little more than these couple of factors before making up your mind. So, let’s dive deeper into the topic and take a closer look at all the possible situations.
Key Takeaways
Yes, you can use a personal installment loan to buy a car. Typically, installment loans are best for used automobiles.
It's not uncommon to find oneself in need of a car without the immediate availability of substantial funds. In such cases, turning to a loan is a practical solution. Whether it's for commuting to work, running errands, or simply enjoying the freedom of the open road, having a reliable vehicle is essential for many aspects of daily life.
With a personal installment loan, you can get the quick cash you need to purchase a car and repay it over time in manageable installments, making it a convenient and accessible choice for many. This financial flexibility is great because you can get that car right away without compromising financial stability.
Moreover, most personal installment loans are online personal installment loans, if you get our meaning. This means you don't have to sit in a bank office or fill out a paper application somewhere. You can simply grab your smartphone and get approved in a few minutes.
Here are five reasons that you may want to use an online installment loan versus a car loan at your local dealership. Make sure you understand your loan offer and make comparisons to find the loan that fits your financial needs.
By opting for a loan instead of depleting your savings, you ensure that you have a financial safety net for unexpected emergencies, avoiding the risk of being stranded without funds for essential needs like gas.
If you manage to make sure that your total debts do not account for more than 28% of your monthly gross income, you won’t experience any trouble with including the loan payments in your budget.
With the loan approved online in advance and the funds in your account, you have instant access to make the purchase, avoiding delays or missed opportunities.
By exploring different rates, you can easily find a loan option that suits your financial situation, potentially saving you money over the long term.
At times, people who decide to pay for a car with cash end up going for a cheaper vehicle that is not in good working condition because it’s the only option they can afford. The funds that you’ll get access to with an installment loan will help make sure that you don’t neglect vehicle safety.
The Difference Between an Auto Loan and an Online Personal Installment Loan
The biggest difference between an auto loan and a personal installment loan is the fact that the former is used specifically for the purchase of a vehicle. You cannot spend the loan amount on anything else.
Furthermore, an auto loan is a secured loan that uses your vehicle as collateral. In case you fail to repay the loan, the lender will repossess the car.
Personal installment loans are generally unsecured, and you can use the money to buy any type of car you want (you might not get approved for an auto loan if you’re planning on purchasing an old car, for example).
Do bear in mind, however, that auto loans typically have longer repayment terms. That is because unsecured loans pose a higher risk for lenders. With that being said, there can be exceptions, so you should spend some time doing your research on the rates and terms offered by different lenders in your area.
Consideration |
Auto Loan |
Personal Installment Loan |
Purpose |
Specifically for purchasing a vehicle |
Can be used for any purpose, including buying a car |
Collateral |
The vehicle being purchased serves as collateral |
Generally unsecured, meaning no collateral is required |
Vehicle Restrictions |
Must be used to purchase a vehicle |
Can be used to buy any type of vehicle, including old cars |
Repayment Terms |
Typically longer repayment terms |
Repayment terms may vary, but are generally shorter compared to auto loans |
Approval Considerations |
Approval may depend on the type and condition of the vehicle |
Approval is based on various factors, including credit history, income, and other financial factors |
Risk Assessment |
Lower risk for lenders due to collateral |
Higher risk for lenders, as there is no collateral |
Research |
Important to research rates and terms offered by different lenders |
Important to research rates and terms offered by different lenders to find the best option for your financial situation |
When To Use an Online Personal Installment Loan To Buy a Used Car
There are a few situations when you might want to consider going for a personal installment loan to buy a vehicle.
1. Conventional Financing Is Not Available for the Car
An auto loan may simply not be an option for the car that you’re eyeing. This will typically happen with older vehicles that are over a decade old.
There is no set number on how old of a vehicle you can finance. You might find a lender that would be willing to give you an auto loan no matter how many years have passed since the car has been manufactured but make sure to pay extra attention to the terms of the loan in such a case.
However, in general, trustworthy financial institutions will not agree to finance auto loans for vehicles that are older than 10 years. So, in such a case, a personal installment loan might be the only option you’re left with.
2. Your Credit Is Not Good Enough for an Auto Loan
Though there isn’t a standard credit score that is required to qualify for an auto loan, a score of 661 and above might be able to get you a loan at a good rate. The minimum requirement is usually around 600.
If you’re planning on financing a new vehicle, the requirements might be a little harsher. In fact, for most new auto loans, borrowers have a score of around 730.
So, if your credit score is less-than-perfect, you may find it challenging to qualify for any auto loan. When it comes to online installment loans, the requirements are typically a little lower.
3. Your Personal Installment Loan Has Better Terms Than an Auto Loan
The rates for unsecured installment loans tend to be higher, but there are cases in which you might end up qualifying for a competitive offer.
By shopping around and finding out more about the terms of different loans from various lenders, you can make an informed and cost-effective decision. And there is a chance that for your specific case, an installment loan would be a better option.
Benefits of Using a Personal Installment Loan for a Used Car
There are quite a few advantages to financing the purchase of a used vehicle with a personal installment loan. This type of loan provides a lump sum that should be paid off over time in equal monthly payments.
This is certainly a convenient way to take care of your debt as you’ll get to plan the monthly payments and incorporate them into your budget without making huge adjustments to your daily life.
Pros of Financing a Car with a Personal Installment Loan
Cons of Financing a Car with a Personal Loan
There are also a few disadvantages of taking out a personal loan to finance the purchase of a vehicle that every potential borrower should be aware of.
Going for an auto loan to fund the purchase of a vehicle is not always the most cost-effective decision. In some cases, a personal installment loan can be a better choice.
If you cannot meet the requirements of the lender to take out an auto loan (for example, your credit score is too low) or if you want to use the money to buy and restore an old vehicle (some lenders won’t finance cars that are over 10 years old), an online personal installment loan might be your only option.
There can also be instances when a personal loan lender would offer you more favorable conditions. So, going for a personal loan in such a case would simply make more sense financially.
Before making up your mind, make sure to spend some time shopping around and crunching the numbers. After you consider all the factors, including the overall cost of the loan, the repayment timeline, and loan limitations, you will be able to make the best possible decision for your specific case.
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