As a rule, a regular car loan with collateral is always a better option than an unsecured loan. The latter is easy to get because you do not need to pledge. But to cover the risk of the lender, consumer loans usually come with sky-high interest rates. Ordinary effective interest rates range from 9% to 25% per annum, and it can quickly become very expensive and difficult to operate. A lot of short-term consumer debt can also prevent you from getting a mortgage application in the future. The only thing required to obtain a consumer loan is usually to pass a credit check.
Secured car loans are not always the best choice
However, there is a scenario where the best choice can be a consumer loan. Imagine selling your current car but having to wait for a new one. To get this you need a loan. But that may mean that you will repay the entire debt as soon as or shortly after you finally sell the old car. With a consumer loan, you then avoid some unnecessary costs, such as a fee for registration of the sale mortgage and the establishment fee, as well as full hull insurance on the car. Moreover, car loans are rarely granted for such short periods or for low loan amounts. It usually does not pay to sign up a mortgage for small amounts, at least not if you plan to settle it quickly.
Consumer loans are unsecured loans
There is often a limit to how much you can borrow. This limit can be around $ 250,000, and thus puts some restrictions on how nice a car you can buy. Furthermore, with consumer loans, it is rare that you move up in such high prices anyway, because it usually involves a longer repayment schedule and thus becomes too expensive in the long run. If the loan amount is more than $ 100-120,000, it is not uncommon to choose a loan with a mortgage.