What distinguishes a consumer loan from a commercial loan?

A consumer loan is primarily designed for individual use, typically for purposes such as purchasing a car, financing education, or covering personal expenses. These loans are generally smaller in amount compared to commercial loans, which are aimed at businesses for various operational needs, expansions, or investment in equipment.

This distinction in purpose and size is significant. While commercial loans often involve larger sums that can be tied to physical assets or operating capital, consumer loans are tailored for personal financial needs, reflecting the average consumer's financial situation.

Consumer loans are generally not secured by collateral in the way commercial loans might be, where specific assets could be pledged. Furthermore, the repayment terms for consumer loans are often shorter than those for commercial loans, which can span multiple years to accommodate a business's cash flow cycles. In summary, the correct answer that highlights the primary difference between the two types of loans is based on their size and intended use, making consumer loans often smaller and for personal use.