Car loans or consumer loans: which is better?

Buying a car is considered quite troublesome and costly. Not everyone has the opportunity to accumulate on the desired model of the machine. In this case, a citizen has two ways: use a car loan or take a consumer loan. Each of these options has its pros and cons.

car loan and consumer loan

General description of loan products

The consumer loan is issued by the bank to the client in order for the client to acquire one or another product or service. There is also a special type of consumer loan, called “target”. In this case, the borrower has the right to spend the funds issued only for a certain thing or service. 

car loan and consumer loan

If a citizen chooses a regular loan, then he will most likely need to be provided with some kind of pledge or a guarantor. After all, a car, even a domestic one, is not cheap. Therefore, the bank has to insure itself in this way. Unlike a consumer loan, with a car loan, the car automatically becomes a collateral. 

car loan and consumer loan

Advantages and disadvantages of car loans and consumer loans

car loan and consumer loanThe first thing to consider is how profitable this or that option is in terms of cost. Here the consumer loan significantly loses the car loan, its interest rate will be higher by 5-7%. It would seem that then it is much more profitable for a borrower to immediately issue a car loan. But it should be noted that when car loans are drawn up, it is always imperative to receive a CASCO policy. Therefore, the benefit by the ratio of interest rates is leveled by this circumstance. 

Some are not satisfied with car loans that the transport will be owned by the bank until the end of payments. This means that selling a car or making another deal with it will not work. In the case of a consumer loan, the borrower becomes the full owner of the car. 

Upon receipt of a consumer loan, it is usually required to immediately make the first payment, the amount of which is significant. In addition, the timing of payments is much shorter, in contrast to car loans. For example, when applying for a consumer loan, the contract will indicate that all funds must be returned within a year.

car loan and consumer loan

In the case of car loans, this period is usually 2-3 years, it all depends on the cost of the purchased car. Therefore, it makes sense to take a consumer loan to buy a car for those who already have a certain accumulated amount and firm confidence to manage the rather big monthly payments.