A personal loan can be used for almost anything, including car purchases. However, just because you can use a personal loan to buy a car doesn’t mean you should. There are only a few circumstances, most of them relatively rare, in which a personal loan is a better solution than a traditional auto loan to finance a vehicle.
Here’s the skinny on personal loans, when they make sense for car purchases, and when they don’t.
How personal loans work
Many loans are designed for a specific type of purchase (mortgages for homes, auto loans for cars, and so on), but personal loans are for anything. You can use the proceeds from a personal loan however you’d like, whether it’s to refinance debt, go on a vacation, or buy a car.
When deciding whether to give you a personal loan, a bank looks at your income, credit score, and any monthly obligations you have. From there, the bank decides how much it can lend to you, and on what terms.
Because a personal loan isn’t contingent on how you plan to use the money, there aren’t any outside forces that can throw a wrench in your plans. You might apply for a $10,000 personal loan with the plan to buy a car at some point in the next month or two. With cash in hand, you can confidently pay cash for a car you find on a dealer lot or on websites like Craigslist or eBay. You don’t have to wait to find a car to apply for a personal loan.
When you accept a personal loan, the funds are typically disbursed by direct deposit into a savings or checking account. If you accept a $10,000 loan today, you could easily have the money in your bank account in as little as 24 or 48 hours.