Yes, you can buy a car with a personal loan, in theory – but there are many reasons not to. Personal loans can typically be used for many things, but they can also be more trouble than they're worth and encourage overspending. If you're looking for a vehicle, an auto loan is usually the way to go. Here's why.

Personal Loans vs. Auto Loans

Many people assume that a personal loan is easier to qualify for than a car loan, and it's just not the case. Personal loans aren't secured by anything, so lenders typically don't have much recourse if you stop making payments.

Auto loans, on the other hand, are secured by the vehicle you're financing. If you stop making payments or otherwise default on the loan, the lender can repossess the car to recoup its costs.

Can I Buy a Car With a Personal LoanAnother reason it's preferable to get an auto loan is that they typically come with lower interest rates, and are typically simple interest loans. Interest is the cost of borrowing money, and the more secure the loan, the less interest you're likely to pay. Interest rates are also largely influenced by your credit score, so the better your credit the lower your interest rate may be.

Additionally, personal loans typically have a lower loan amount than an auto loan. So, if you want to use a personal loan to buy a car, your options are likely to be limited. Not only will you only be able to purchase an inexpensive vehicle, but you're also likely to have less time to repay the loan, which means bigger monthly payments.

Rather than using a personal loan to buy a car with no strings attached, an auto loan may save you over time. The point isn't to get the biggest loan you can, but to get a big enough loan to finance an affordable, reliable vehicle.

Credit Scores For Financing a Car

Car loans typically have many requirements which vary depending on your situation and the lender you're applying with. Your credit score is a big factor in overall auto loan approval.

Your credit score is a three-digit number between 300 and 850 on the FICO credit scoring model. The higher your number, the better the score, and the more loan opportunities you may have. There are five tiers in the FICO scoring model ranging from super prime (very good, 781 and above) to deep subprime (very bad, 500 and below).

For car buying purposes, though, you can think of your credit in two categories: good or bad.

Typically the dividing line falls at 670. If your score is lower than this, you may be required to have more documentation to get a car loan, need a bigger down payment, be required to get a cosigner, or may struggle to get an approval from a direct lender such as a bank or credit union.

Note: Most auto lenders use FICO when they look at your credit score, though there are other scoring models available, such as VantageScore. FICO is the oldest and most widely used credit scoring company (they literally invented the concept!).

Good Credit Car Loans

If your credit score is 671 or more, you're likely to have an easier time qualifying for an auto loan, as long as all your ducks are in a row and you can pay for the loan. Depending on how high your score is, you may be required to bring in little more than a valid driver's license and proof of income. Realistically, be prepared with documentation such as check stubs, personal references, and proof of a working telephone in your name.

When you're in a good credit situation, you hold the power to choose your vehicle from any dealership, negotiate your price, and take delivery. You may qualify for lower interest rates, shorter loan terms, and more vehicle options than someone who struggles with credit.

As a good credit borrower, you're also more likely to qualify for a car loan through a direct lender. Getting pre-approved for a loan through a bank or a credit union turns you into a cash buyer at the car lot, so you can just sign and drive.

But what if your credit's not so hot? No worries, there's a wide range of lending options for borrowers who fall under that bad credit cutoff.

Bad Credit Auto Loans

Credit scores are huge when it comes to car loans, but it's far from the only thing you need to qualify. Lenders also look at your credit report and if you're a bad credit borrower, they dig even deeper, to help you qualify for a bad credit auto loan based on other factors.

Bad credit lenders, called subprime lenders, look beyond your credit score to see if you have the ability, stability, and willingness to take on a car loan. They do this by requiring proof of your income, employment, and residence, and by requiring additional information and down payment.

If your situation doesn't qualify you for a loan with a bad credit lender, you're still not out of options! There's another category of lenders called in-house financers, and they can often help when you've been turned down by a subprime lender at a dealership.

In-house financiers are often referred to as buy here pay here (BHPH) dealers, and they provide you with both the vehicle and the cash you need to get it. Since you're paying the lender directly, you're often required to make payment in person and may be required to pay more than once a month. If it comes down to it, a loan from a BHPH dealer is edging closer to the interest rates of a personal loan in some cases, but still may be a better option. To qualify for one of these loans, you typically only need proof of income, a valid driver's license, and a down payment.

Auto Loans Over Personal Loans for Car Buying

When it comes right down to it, an auto loan is designed specifically to help borrowers in need get into the vehicles they want.

Sometimes, the car we want as bad credit borrowers are outside our means, and many borrowers assume a personal loan will help. Often, though, a personal loan may only help in a handful of situations, such as needing a few thousand to buy a used car from your grandmother or a neighbor.

If you're not having the luck you thought you would when you started your car buying journey, it may be time to try a subprime lender. These lenders work with people who have bad credit, and those with no credit at all.

At Auto Credit Express, We want to help connect you with a local dealership that's signed up with the lenders you need. Simply fill out our fast, free auto loan request form and we'll get right to work connecting you to a dealer.