Borrowing money without pledging the car as security is possible when you use a personal loan instead of a traditional auto loan, and for some buyers it is the better path. An unsecured loan, which is what most personal loans are, means a lender cannot repossess the vehicle if you fall behind on payments. The trade-off is usually a higher interest rate.
The short version: auto loans are cheaper on paper but harder to get on older vehicles and thin credit. Personal loans cost more on average but come with fewer restrictions on what you can buy.
When the car itself blocks conventional financing
Some lenders will not finance a vehicle older than ten years, and many cap eligibility at 100,000 miles. If the car you want falls outside those limits, a conventional auto loan may simply not be on the table.
Credit history matters here too. Borrowers with subprime scores, defined as 501 to 600, often face steep rates regardless of which loan type they choose. According to Experian data, the average interest rate on used cars reached 19.10% in the second quarter of 2026, while new cars averaged 13.52% in the same period. Personal loan rates can climb as high as 36% for subprime borrowers, so the comparison depends heavily on which lender will approve you and at what rate. Prequalifying with at least three lenders lets you compare offers without triggering a hard credit inquiry that could lower your score.
What the loan structure actually means day to day
Both products are installment loans: fixed monthly payments over a set term, generally between two and seven years. The key structural difference is collateral. Auto loans are secured by the vehicle, meaning a lender holds a lien, which is a legal claim against the car, and can repossess it if you default. Personal loans carry no such claim, so the car stays yours even in a worst-case scenario.
Personal loans also require no down payment, where many auto loans do. Some personal loan lenders fund as fast as the same business day, which matters when buying from a private seller who needs quick payment.
Watch for origination fees and prepayment penalties on the cost side. Some personal loan lenders charge both, and they add to the total you actually pay.
For buyers with strong credit, this calculation can run the other direction. Top-tier auto loan rates start as low as 6.5%, according to the source data, and manufacturer financing programs can include significant rebates or 0% financing. Strong credit may qualify a buyer for both a competitive personal loan rate and a promotional dealer deal, which makes running both scenarios worth the time before signing anything.
The 19.10% average used-car auto loan rate from Experian's second-quarter 2026 data is a useful anchor when you start comparing your own offers.