Personal loan vs consumer credit: what’s the difference?
These two terms are often confused, even though they refer to different things. Understanding the distinction will help you choose the type of financing best suited to your situation.
What is a personal loan?
A personal loan, also called an unsecured or general-purpose loan, lets you borrow a sum of money without having to justify its use to the lender. You are free to use it for a trip, an unexpected expense, or any other personal project.
What is purpose-tied consumer credit?
Purpose-tied credit is directly linked to the purchase of a specific good or service: a car, home improvements, furniture. Releasing the funds is usually conditional on proof of purchase (invoice, quote, order confirmation), and the credit agreement is tied to that item.
The main differences
- Proof of use: none for a personal loan, mandatory for purpose-tied credit
- Legal link to the purchase: none for a personal loan, direct for purpose-tied credit (if the purchase is cancelled, the credit is too)
- Rate offered: often more favourable for purpose-tied credit, since the risk is easier for the lender to assess
- Flexibility: greater with a personal loan
Which type of credit should you choose for your project?
If your project is specific and identifiable (buying a vehicle, renovation work), purpose-tied credit such as the auto loan or the home improvement loan is often more advantageous. If you need flexibility, or your project does not fit any specific category, the personal loan is the most suitable solution.
Frequently asked questions
Is a personal loan more expensive than purpose-tied credit?
Generally, yes: purpose-tied credit often benefits from a better rate because the risk is easier for the lender to assess.
Can I use a personal loan to buy a car?
Yes, nothing requires you to use a purpose-tied auto loan. However, credit tied to this type of purchase often comes with better terms.
What happens if I cancel a purchase financed by purpose-tied credit?
The credit agreement is, in principle, automatically cancelled as well, since it is legally linked to that specific purchase.
Ready to apply? Discover the loan types suited to your project:
