Can you use a personal loan to buy a car? A comprehensive review for 2025

A dream car purchase is a major financial decision you must make with great consideration. Therefore, selecting the appropriate financing option is essential so that you do not get yourself into a heavier financial burden. While car loans are specifically designed for vehicle purchases, personal loans can also be used as an alternative.

Understanding personal loan for buying a car

A personal loan is a lump sum amount that can be used for a number of purposes, like a car, an unsecured loan. Personal loans are not secured on the vehicle so you have more flexibility in how the loan can be used. However, you must note that personal loans carry higher interest rates.

Key advantages of using a personal loan for buying a car

• No collateral requirement: You are not required to pledge your car or any other asset as security while getting personal loans.
• Flexible use: This loan can be also used to pay for other car related expenses such as registration, insurance and accessories.
• Less paperwork and a quick disbursal: Personal loans involve less paperwork and are disbursed faster as compared to car loans.
• EMIs and fixed interest rates: The EMIs and fixed interest rates on personal loans are also easier to calculate since the interest rates are fixed and the EMI payments will remain the same over the tenure of the loan.

Subodh Kumar, General Manager-Retail Asset Division, Punjab National Bank, said: "A personal loan can indeed be used to purchase a car, as lenders typically do not require verification of the loan’s end use. This flexibility allows borrowers to allocate the funds according to their specific needs, including vehicle purchases. However, borrowers often prefer vehicle loans for purchasing vehicles, as personal loans generally come with higher interest rates and are therefore more expensive."

Steps to apply for a personal loan to buy a car

1. Assess your financial situation: Assess your financial situation to know how much you can spend on your loan repayment and how much money you would want to borrow.
2. Research lenders: Explore various banks and NBFCs and compare the interest rate, tenure and the charges to bag a deal that fits your budget.
3. Check eligibility: Make sure you meet the requirements of the lender with respect to age, income, employment and credit score.
4. Gather documents: Identity proof, address proof, income statement and bank statement are the documents that are mostly required for the processing of the loan.
5. Apply for the loan: You can apply for the loan by either applying online or offline and submit all the required documents.
6. Loan disbursal: If your loan is approved, the amount of the loan is transferred to your account within a few days of business. In some cases, it may take a few cases longer.

In conclusion, you must understand that personal loans attract higher interest rates with shorter tenures. Even a single missed payment can affect your credit score because of which you might not be able to get future loans at low interest rates. Hence, make sure that you thoroughly plan your repayment journey before you apply for the loan.

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