Skip to content
GAFCU symbol banner

Credit Union Personal Loan vs. Auto Loan


Credit Union Personal Loan vs. Auto Loan

Which is better in purchasing a car?

When you want convenience and comfort, buying a car of your own, whether brand new or secondhand, is always a good preference. However, it never comes cheap.

If your savings is not enough to purchase a car, your option is to go for a car loan. The other alternative is a personal loan. That may have you wondering about the pros and cons of a personal loan vs. auto loan.

Debt statistics for auto loans that hit a whopping $1.2 trillion before 2017 ended is evident that having your own car is a necessity. But you know what they say, “You get what you pay for.” And buying a car is no exception.

How to decide between a credit union car loan and a personal loan
Both a car loan and a personal loan can be used to finance a new or used car. Your decision should be based on the vehicle you’re looking to buy, your needs, and your expectations for the future.

First, some definitions.

What are personal loans?

A personal loan is more fluid than an auto loan. They’re not only accessible at credit unions, local banks, and even online, but these loans also have relatively low-interest rates without asking for collateral or any guarantee.

Here are some other things you need to know about a personal loan.

  • Typically, a personal loan doesn’t require collateral, which makes it unsecured. The lenders will only check your financial situation and credit score to decide if you’re qualified or not. But, since this loan is unsecured, it often imposes a higher interest rate than a car loan.
  • Fast application. A personal loan tends to have shorter applications because you don’t need to dispense collateral. You just need to list down the general purpose of the loan when you apply.
  • The funds are applicable for general purposes. Lenders for a personal loan don’t impose restrictions on how you’re going to use the funds. You can use the money you borrowed to purchase a car, pay for taxes and titling, and cover any accessories. Unfortunately, an auto loan can’t give you these perks.

What are car loans?

Car loans are specifically developed to cover for a car’s cost and its related expenditures like registration and licensing. It’s accessible through a bank, online lender, or a dealership, whichever is most feasible for you.

Here are further characteristics of a car loan that you need to know about.

  • Low-interest rates. Unlike a personal loan that comes unsecured, an auto loan is secured by your vehicle, which makes the interest rate competitive.
  • Long application. A car loan application tends to be lengthier because it requires more information to be submitted to the lenders, specifically about the model and make of the car you want to buy. But you don’t need to worry as there are lenders who will give you ample time to shop around and fill in this information later.
  • It has restrictions. You can only use a car loan for buying a vehicle, although there are lenders who allow utilizing the loan to pay taxes. Also, if you’re going to buy a used car, there might be limitations on the vehicle you can purchase.

Regardless of whether you choose a credit union personal loan vs. auto loan, you need to carefully evaluate the terms and conditions attached to the loan before making a decision.

Before your buying journey starts, ask yourself these  questions

  • Do you know the type of car you want to purchase? Being certain of what car you want to buy will put you in a good position to negotiate with a lender, whether you are interested in an auto loan or personal loan.
  • What is your credit score? Your credit score will influence the types of loans available to you as well as the interest rate you will be charged. That may sound scary if you have poor credit. While having a poor credit score may make it difficult for you to secure a loan, there are still car loan options available for borrowers with bad credit. Ask your credit union or lender for recommendations if you are in this situation.
  • Are you buying a used car? Buying a used car is an effective way to save money. But, you will need to look for a used car loan for the vehicle you want, particularly if it has over 100,000 miles or if it’s an older model.
  • Do you plan to modify or add accessories to your car? It can be expensive to make modifications to your car, even if it’s just a change to the body of a car or a new coat of paint. Most car lenders will not allow you to add these extra expenses into your loan.

Comparing personal loans and auto loans

Check the key features of your personal loan and auto loan options side by side.

Terms of payment

For both loans, you have to pay attention to important details such as the interest rates, payment terms, and cost of your monthly payments. Commonly, the first thing you look in car financing option is the interest rate. That will allow you to calculate the monthly payment you’ll need to make. Use a loan calculator to ensure your monthly payment will be low enough to fit within your budget.

Further, don’t dive into a deal right away without considering the full amount you’re going to pay for the vehicle you plan to buy. You might be tempted to go after a longer repayment period with lower monthly fees. But also consider that a shorter term will mean less piled-up interest over time. Likewise, consider the length of the term relative to the condition of the car you are purchasing. Will the car be in good shape for as long as you have the loan?

Credit score

If you opt for a personal loan, the lenders are going to check your credit score rating to ensure that you’re capable of paying on time.

If you have a less-than-desirable credit score, you might have a hard time getting approved for a personal loan. Either way, your bad credit will get you saddled with a higher interest rate if you qualify. When such is the case, it’s best to settle as much outstanding credit debt as you can before applying for any loan.

How to find the right type of loan for you

Following these steps can help you find the right loan for you.

  • List loans you’ll likely qualify for and then compare different lenders. Take note of the APR (Annual Percentage Rate) and loan term. As mentioned above, these factors will help you decide between loan options.
  • Check the loan’s features to see if rate discounts and prepayment fees apply. Rate discounts may allow you to “buy” the loan for a lower rate. Prepayment fees may cost you more if you decide to pay off the loan early. Different loans have different features. Checking these features can help you decide whether you want a car loan or personal loan from a lender.
  • Estimate the total cost of your loan by using a calculator or getting online quotes.
  • Decide whether a personal loan or car loan best suits your needs and is more affordable. Then, narrow down your options to three or four lenders who offer your selected loan type.
  • Submit an application to see if you’ll get approved. Most lenders will let you check your rates before completing a full application through their pre-approval processes.


Deciding between a personal loan and a car loan can affect your finances for years to come. It’s a big decision that comes with a big responsibility. When evaluating a personal loan vs. auto loan, remember that the right choice depends heavily on how it will work with your financial situation. Choose a lender who understands your financial goals and offers a loan type that helps you achieve those goals.

Whether you are looking for a Personal Loan or a Car Loan, we can help. At Greater Alliance Credit Union, we offer both these options. To learn more about our loan features and rates, call us today at (888) 554-2328 to see which option works best for you.