Car Financing Dilemma: Deciphering the Pros of Car Loan vs. Consumer Loan


Are you wondering what is more profitable when buying a car: a car loan or a consumer loan? There is no single answer to the question of which is more profitable. If you plan to buy a car and will need a loan to do so, research the benefits and drawbacks of targeted and non-targeted loans. Calculate your future spending and pick which loan is the most convenient and beneficial for you. To make it easier for you to decide, this article reveals in detail how a consumer loan differs from a car loan.

Car loan

This is one of the types of targeted lending. So, it can only be spent on one thing – buying a car. Interest rates on online title loans are lower than on consumer loans. This is due to the fact that the car does not fully belong to its owner but is pledged to the lender. A pledge is a guarantee that the debt will be fully and on time repaid.

Advantages of a car loan

  • The rate on a universal car loan (it can be spent on the purchase of any new car) is lower than usual.
  • Lenders often have special programs launched together with official dealers. They apply to specific makes and models. The rates for such programs are much lower, and you can profitably purchase a car.
  • You do not need to collect a large package of documents for car title loans, but it is better to clarify the requirements of the lender in advance. A passport, completed application form, and driver’s license are required in any case. If the car dealership has an agreement with lenders, then a loan can be issued right there, and you leave immediately in a new car.
  • Car dealerships often run additional marketing promotions designed for those who buy cars from them with online title loans. For example, they give discounts on special equipment.

Cons of a car loan

  • You need a down payment, which is rarely less than 15% of the total loan amount. In some cases, the amount of the down payment may even be 50%. For example, when a car is purchased on a stock with a reduced interest rate.
  • The loan is issued for a specific car. You won’t be able to change your mind and buy Skoda instead of Toyota.
  • Until the debt is repaid, the car cannot be sold or donated. It is in the ledger’s pledge.

Consumer loan for a car

Unlike a car loan, a consumer loan (or cash loan) can be used for different purposes. Not just for buying a car. The lender does not require a deposit. But the interest rate, with rare exceptions, on consumer loans is usually higher than on car loans.

To obtain a consumer loan, documents confirming the solvency of a potential borrower are required. In some cases, even a guarantor is required. In addition, credit history is taken very seriously. If a person already has outstanding debts or has been in arrears in payments, he may be denied even a relatively small amount.

The interest rate on consumer loans is higher than on car loans. It depends on the period for which the loan is issued and averages up to 25%. Lenders are not always willing to approve very large amounts of consumer loans.

Things to keep in mind when choosing a consumer loan to buy a car

  • You are required to insure the car. If it is stolen or you get into an accident, you will incur losses. And in any case, the loan will need to be repaid.
  • There are no restrictions on buying a car when it comes to consumer loans. You can buy any car: any brand, old, new, imported from abroad. Since the loan is non-targeted, it does not matter to the lender what exactly it was spent on.
  • The lender does not leave the car as collateral. So, after you sign the contract of sale, you will become a full-fledged owner of the car. And you can give it, sell it, in a word, do whatever you want with it. However, this will not exempt you from loan payments.
  • The rest of the cash you can spend on car repairs or on additional equipment, if necessary.

When deciding between a car loan and a consumer loan for a car purchase, careful examination of their various benefits and drawbacks is critical. A car loan designed exclusively for vehicle buying provides cheaper interest rates, prospective dealer cooperation, and simplified application processes. However, it frequently requires a down payment and binds you to a certain vehicle. A consumer loan, on the other hand, offers greater freedom but comes with higher interest rates and stricter qualifying requirements. Whatever course you take, remember to examine your alternatives, assess your requirements, and consider the long-term consequences. Explore Recashloan for quick online title loans for instant financial assistance.

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