Personal Loans vs Auto Loans | Key difference

Personal and auto loans commonly come up with fixed-rate but interest rates and repayment terms differ. This guide provides the top differences between personal loans and auto loans. Read on to know more!
Personal Loans vs Auto Loans | Key difference
A comparison of a Personal Loan vs. an auto Loan ultimately comes down to your needs, financial circumstances, and desires. Let's explore more about the two!
In this article

Two types of standard loans, personal and auto loans, become more beneficial in financial needs. A personal loan is typically used for expensive medical charges, weddings, or home renovation. In contrast, an auto loan is strictly for buying vehicles. When we compare personal loans vs auto loans, various vital factors define the actual value of the individual loan. Personal and auto loans commonly come up with fixed-rate but interest rates and repayment terms differ. 

What is a Personal Loan?

Personal loans allow borrowers to borrow lump-sum without any collateral need. When borrowers apply for personal loans, lenders check their incomes, credit scores, and financial history. Lenders who are satisfied with your documentation will approve a personal loan appeal. A personal loan can help borrowers to approach their individual money needs, such as paying medical bills, debt consolidation, vacation expenses, having a family wedding, or home renovation.   

Usually, personal loans are unsecured for lenders, meaning they don’t use any asset against borrowed funds. Personal loan interest rates vary on the borrower’s credit history. Commonly, the personal loan interest rate is higher than auto loan rates, causing the unsecured nature of the loan.  

Pros of Personal Loans

  • Flexibility: Personal loans significantly allow borrowers to use borrowed funds with their flexibility or specific purpose. A quick personal loan can be beneficial if you need an instant cash advance. 
  • No assets requirements: Personal loans are usually unsecured, meaning they don’t require collateral. Personal loans don’t put your assets at risk when you cannot repay the loan.
  • Fast approving process: A personal loan provides quick approval, and funds are usually disbursed to your account within business days.

Cons of Personal Loans

  • Highest interest rate: Personal loan interest rest is quietly higher than auto loans or home loans.
  • High criteria for credit score: If borrowers come with poor credit scores, they are not eligible to appeal for personal loans.
  • Lower borrowing limit: Personal loan offers borrow funds up to $100,000, which might be lower than another secured loan.

Beem can help you find, compare options and choose the best personal loan for you to meet your needs.

What is an Auto Loan? 

An auto loan is a vehicle loan that helps borrow funds based on new or used vehicle purchases. In auto loans, lenders will pay the money to vehicle companies on behalf of borrowers; then borrowers have to repay the loan in Equated Monthly installments (EMIs) with specified interest rates. After repaying the loan, the lender will transfer the original registration document to the borrower’s name. As per the annual percentage rates (APR), auto loans are available for 60 months or less.  

Typically, auto loans provide lower interest rates compared to personal loans. Meanwhile, it has some strict rules also. If borrowers apply for auto loans, they cannot spend that funds for personal use. Auto loans are extremely good for buying commercial vehicles such as trucks, buses, cabs, and cars. 

Pros of Auto Loans

  • Specified purpose: Auto loans can be only applicable to purchasing new or used vehicles. This loan allows the applicant to buy their needed vehicle without the hassle.
  • Secure loan: Auto loans are secured compared to other loans, which means lenders use the purchased vehicles as collateral. 
  • Fixed terms: The auto loan allows borrowers to repay the loans within applicable time limits of 36, 48, 60, or 72 months.
  • Low-interest rates: Auto loans provide low-interest rates as compared to other loans.

Cons of Auto Loans

  • Repossession Risk: If the borrower fails to make the payments, the lender can repossess the vehicle. It leads to their vehicle’s loss and credit score damage.
  • Limited flexibility: Auto loans are specifically for vehicle purchases. Therefore, it is strictly for its borrowed funds. Borrowers can’t use these funds for their personal use. 
  • Interest Expenses: Even with low-interest rates, the general loan cost can be substantial, especially with longer loan terms, resulting in higher interest expenses.

also know about: business loan vs Personal Loan

Personal Loans vs Auto Loans: What’s the difference?

When comparing Personal Loans vs Auto Loans, there are differences between them. Here are a few key differences highlighted in the table:

AspectsPersonal loanAuto loan
PurposeBorrowed funds for various personal financial useSpecifically used for buying old or used vehicles
As collateralUsually unsecuredSecured through the vehicle
Interest rateHigher compared to auto loanLower due to collateral
Repayment termsOne – Seven yearsThree- seven Years
CriteriaHigh credit score, stable income, and credit historyGood credit score, vehicle value

Personal loans offer freedom for various needs, whereas auto loans are designed strictly for vehicle purchases. Auto loans are protected by the vehicle being financed. On the other hand, personal loans are frequently unprotected and depend on financial stability. Due to collateral, interest rates on personal loans are more expensive than rates on auto loans. While you choose the loan that best fulfills your requirements, the qualifying requirements and repayment conditions also differ between the two loans.

also know about: personal loans for fair credit

Personal Loans vs Auto Loans: Which One to Choose?

  • Personal loans offer flexibility for a range of needs outside purchasing a vehicle.
  • Auto Loan Designed specifically for funding the purchase of vehicles, this loan offers affordable interest rates due to assets.
  • Consider getting a personal loan if you require unsecured funding and have various financial needs.
  • If buying an automobile is your primary goal, use an auto loan for cheaper interest rates and secured financing.
  • Personal loans are best for people who want freedom in funds usage, whereas auto loans are designed for people who wish to acquire a car.
  • To make an informed choice, compare interest rates, repayment options, and loan objectives. The decision ultimately comes down to your unique needs, financial condition, and desire for secured versus unsecured financing.

also know about: Home Equity Loan vs Personal Loan


A comparison of a Personal Loan vs. an auto Loan ultimately comes down to your needs, financial circumstances, and desires. A personal loan could be the best option if you need flexibility to cover various expenses. On the other hand, an auto loan offers several benefits, and reduced interest rates if buying a car is your main objective. Make an informed choice in line with your financial objectives after thoroughly evaluating your situation and the available options.

Struggling with consolidating debt, making major purchases, or meeting unexpected costs? Beem can help. Beem’s personal loan feature can help you zero in on the kind of loan that suits your requirements best and helps you sail through a financial crunch.


1. What Is the Main Difference Between a Personal Loan and an Auto Loan?

The main difference lies in their purpose. Personal loans can be used for various personal needs, while auto loans are specifically designed for purchasing vehicles.

2. Do Personal Loans and Auto Loans Have Different Interest Rates?

Yes, auto loans typically have lower interest rates than personal loans. This is because auto loans are secured by the vehicle financed, while personal loans are unsecured.

3. Can I Use a Personal Loan Instead of an Auto Loan to Finance a Vehicle?

Yes, using a personal loan to finance a vehicle is possible. However, personal loans may have higher interest rates than auto loans, making them less cost-effective for vehicle financing.

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Raman Gujral

An achievement-oriented professional, Raman has 10+ years of experience in B2B SaaS and B2C products across Fintech, Telecom, Digital Media, Social Media and Logistics domains. Defining and communicating product vision and strategy, product roadmap development, product positioning, and data analysis, he is also an expert in health insurance and personal loans content.


This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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