Should I take out a personal loan for a car?

Is it a good idea to take out a personal loan for a car? I’m worried about the idea of losing my car if I can’t make payments, and I know I won’t need to use the car for collateral in a personal loan.

Answer
There are some pros and cons to taking out a personal loan to buy a car, but ultimately it’s up to you to decide which choice is best for your situation. Here’s some information that might help you with your decision.
If you buy a car with a personal loan:
  • Your risk of repossession is lower since you won’t use your car as collateral.
  • You probably won’t need to make a down payment.
  • You’ll have more freedom when choosing the car you’d like to buy.
But, there are some cons, including:
  • It could end up being a lot more expensive since personal loans tend to have a much higher APR than auto loans.
The pros to getting a car loan:
  • It will be more affordable. This is a big one; taking out a car loan as opposed to a personal loan could save you thousands of dollars in the long run.
  • It will be easier to get the loan since your credit score won’t need to be as good to qualify for a car loan.
The cons to using a car loan to buy a car:
  • You won’t have as much freedom when choosing your car, since your lender will have requirements that you’ll need to meet.
  • You’ll need to make a down payment. If you haven’t saved up for a down payment, it may be more difficult to find a car loan.
  • You risk repossession if you’re unable to make payments as agreed upon with the lender.
Regardless of how you decide to purchase your new car, you’ll need to get an insurance policy for the vehicle, too. Download the Jerry app and answer a few questions to see a comprehensive cross-analysis of the best policies across more than 50 providers, including Nationwide, Allstate, and Travelers. Jerry will handle the phone calls, paperwork, and renewals for your top pick so that you don’t have to!
Liz Jenson
Answered on Nov 17, 2021
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