Personal Loan vs. Auto Loan: Which Should You Use to Buy a Car?

A car is a big purchase, and many people need to borrow money to buy one. While you can technically use either a personal loan or an auto loan to purchase a car, the answer will be different depending on your needs.

Both types of loans have similar repayment terms. Auto loans are usually secured by an asset, meaning you’ll use the car as collateral, while personal loans are generally unsecured, so no collateral is required. Interest rates may differ as a result. Auto loans also typically require a down payment. 

Let’s explore more about personal and auto loans. 

Personal loans

With a personal loan, you borrow money and pay it back in monthly installments over a set period. You can use personal loans for many types of expenses, but some lenders have restrictions on how the funds can be used, so be sure to research your options. Personal loans are often unsecured. Their interest rates are typically fixed and can vary depending on the lender and your finances. At Citi, you can apply to get a personal loan for up to $30,000 with a term of up to 60 months.

Auto loan

Like personal loans, auto loans involve borrowing money from a lender and repaying it plus interest over a set period. Auto loans also typically carry a fixed interest rate that can vary depending on the lender and your finances. However, auto loans can only be used for car purchases. Auto loans are secured – they use the car you’re purchasing as collateral and often require a down payment, usually at least 20% for new cars and 10% for used.

Deciding whether to finance a car with a personal loan or an auto loan

When deciding whether to use a personal or auto loan for your car purchase, there are a few factors to consider.

  • Collateral: Auto loans require collateral while personal loans typically do not. This usually means lower interest rates for auto loans. However, it also means the lender has a lien on your car, which can make it difficult to sell before you’ve paid the loan off.
  • Down payment: Auto loans typically require a down payment while personal loans do not.
  • Interest rates: Interest rates vary for both types of loans, but auto loans generally have lower interest rates than personal loans because the loan is secured.
  • Type of car: Rates and terms for personal loans don’t change depending on the type of car you’re buying, but auto loans may have higher APRs if you’re purchasing a used vehicle.
  • Terms: Repayment terms are similar for most personal and auto loans. Citi offers personal loan repayment terms of up to 5 years. Auto loan terms generally range from 2 to 7 years.

Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.

This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products. 

Additional Resources

  • Start your personal loan application now!

  • Learn how FICO® Scores are determined, why they matter and more.

  • Review financial terms & definitions to help you better understand credit & finances.