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can i use a personal loan to buy a car
can i use a personal loan to buy a car

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Can I use a personal loan to buy a car?

If you’re looking to buy a car, one of the biggest decisions to make is how you'll pay for it. It's hardly surprising that so many people choose to pay for their vehicle with borrowed money...
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If you’re looking to buy a car, one of the biggest decisions is how you'll pay for it.

If you have enough money in your savings to cover the cost, paying for the car in cash can be a smart move. 

But with most cars costing thousands of pounds, it's hardly surprising that so many people pay for their vehicles with borrowed money.

Specialist car finance deals are a popular option. From personal contract purchase to hire purchase, there are many types of car finance to choose from.

But when faced with these deals, some people ask: "Can I use a personal loan to buy a car instead?"

Let’s investigate…

Can I use a personal loan to buy a car?

The short answer is: yes. A personal loan can be an effective option if you want to buy a car without having to pay upfront.

A personal loan can be one of the cheapest ways of borrowing, providing you get a good rate.

But before filling in the necessary paperwork and waiting to see if your application is approved, read on to find out how personal loans work and whether they're right for you.

How does a personal car loan work?

A personal loan can be straightforward, and if you're looking to buy a car quickly, a loan could see you driving your new vehicle home in days.

Here's how a personal loan works when buying a car:

  • Apply for a personal loan.

  • If your application is approved, the money will be placed in your bank account.

  • You'll then be able to use the money to buy your car.


It should be fairly quick and easy to apply for your personal loan. You may be approved quickly too.

Some lenders approve applications within hours, though others can take a few days.

Once the money is in your bank account, you can use it to buy your car.

What are the benefits of buying a car with a personal loan?

A number of benefits come with buying a car with a personal loan. For example:

  • You'll own the car straight away since you'll use the personal loan to buy it

  • You won't lose the car if you're unable to make repayments since you won't have used the vehicle as collateral

  • You can use a personal loan to buy a car from a private seller. This is something you'd be unable to do with car finance

  • You won't have to abide by mileage limits set by the lender; you'll be able to drive the car as much as you like


What are the downsides of buying a car with a personal loan?

As with any type of credit, personal loans aren't perfect.

Some people may find that a car finance deal suits them better. 

Let's take a look at the downsides of buying a car with a personal loan:

  • If you have a low credit score you may struggle to access a good interest rate

  • You may have larger monthly payments than you'd have if you opted for a PCP car finance deal

  • Your car may be worth less when you sell it. This is something you wouldn't have to worry about if you leased it

  • You may be charged fees or additional interest if you default on the loan. Although you won't have the car taken away, this doesn't mean you can miss repayments without any consequences.

  • You may need to sell the car to pay back your personal loan. Although you won't be forced to sell the car, you may decide it's your only option to get back on track with your debts.

  • You'll be responsible for all repairs and modifications. Whereas some car finance deals relieve you of this responsibility.

  • You may feel tempted to borrow more money than necessary to reduce your interest rate. Interest rates can be lower the more money you borrow. This isn't necessarily a bad idea, but it's important to only borrow an amount you can afford to repay.

  • If you repeatedly miss payments, this could lead to a CCJ.

Can I use a personal loan to buy a car if I have bad credit?

If you have a good credit score, you may find it easier to get your personal loan approved than if your credit score is low. You might also have access to better deals with lower interest rates.

A low credit score doesn't automatically mean you won't be able to get your loan or buy a car, but you may have a smaller choice of deals and face higher interest rates.

Some lenders specialise in offering personal loans to people with bad credit, so these might be worth exploring.

Let's take a look at how you can boost your chances of getting a personal loan so you can drive your brand new vehicle home in no time at all.

How to improve your chances of getting approved

Are you concerned about your ability to get a personal loan to buy a car? 

Read on for a few action steps.

Look at your credit report online

If you'd like to use a personal loan to buy a car, it can be a good idea to check your credit score online first.

You can do this by creating an account with one of the three main credit referencing agencies: Experian, TransUnion or Equifax.

Once you've created an account, you can log in and view your credit report.

Doing this will enable you to see how healthy your credit score is and whether the information held is accurate.

Check your eligibility

It’s often possible to check your eligibility for a loan before making a personal loan application.

This can be a smart idea because it'll save you from applying for a loan that you're unlikely to get.

In some cases your eligibility will be assessed without leaving a footprint on your credit file that will be viewable to other lenders. If you are pre approved for  a loan, you can formally apply for it.

You can find personal loan eligibility checkers through price comparison websites and some lenders’ websites. 

Improve your credit score before making an application

If your credit score is very low and you're concerned about your ability to keep up with repayments with a high interest rate, it may be worth improving your credit score before making a personal loan application. 

This won't be an overnight process, but it could help you access much better deals and save hundreds or even thousands of pounds in interest.

There are a number of ways you can do this. These might include:

  • Registering to vote if you’re not already on the electoral register

  • Paying off any existing debts on time and in full

  • Financially ‘delinking’ yourself from past partners, if you’ve ever had a joint loan, joint bank account or joint mortgage 

For more ways to improve your credit rating before applying for a personal loan to buy a car, take a look at our tips and advice on how to improve your credit score.  

Should I use a personal loan to buy a car?

For some people, using a personal loan to buy a car is a better idea than taking out a car finance deal.

Here are a few questions to ask yourself before using a personal loan to buy a car:

  • How likely is it that my application will be approved?

  • Can I get a good interest rate?

  • Can I afford the repayments?


If you’ve made sure your credit report is accurate, you’ve checked your eligibility online and you’re confident your application will be approved, this could be a smart way to finance the car you want. But it’s important to think about how well you’ll manage the repayments before taking the leap.

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