Differences between loans and credits

 

Usually loan and credit are two terms that people do not usually differentiate greatly. Semantically when dealing with financial content, the two terms are usually used equally to give variety to the texts and not continually repeat the same term. The reality is that these two terms refer to financial products that differ greatly, so that in many cases the user may be confused when reading different financial articles.

Next, we will explain the main differences between loan and credit. For this it is necessary to know separately the basic characteristics of each of the two financial products, making known its main distinguishing features when requesting one type of product or another.

Loan Characteristics

Loan Characteristics

When we refer to a loan, we are talking about a financial operation in which an entity delivers a certain amount of money as a lender to another person or group of people who become the borrowers of the money. Where the repayment of the amount of money borrowed plus the interest generated in a given term is the main condition of the agreement. The return of money is usually done in a fractional way, by means of predefined fees.

Credit Characteristics

Credit Characteristics

Credit is a contract between a credit institution and its client. In this contract it will be agreed that the client or creditor has a certain amount of money. The money arranged through a credit is available to the customer for a certain period of time. During that time you can have the amount you need at any time, either a small amount or the maximum credit limit. The time and quantity used is decided by the client. Interest will be paid only for the amount used, not for the entire amount of money set aside for credit. The return of a credit is also decided by the client, offering great flexibility. During the life of the credit you can return the amounts you deem appropriate. The returned credit is again available to the client until it ends.

The temporality is also different, since, although a refund is also agreed in the loan within a term, at the end of this, it is automatically renewed. In addition, as it is used, the remaining amount accumulated in the account or card is still available.

Traditionally, loans have been used by companies to face periods of lack of liquidity or to carry out certain business actions; on the other hand, loans have become the usual way in which individuals accessed the acquisition of certain assets, such as travel, cars or homes.

The main differences between credit and loan:

  • Acquisition time and accessibility.
    The credit is a more flexible financial product so it is faster to access the money that is needed through it, and it can be available at any time within the time limit established in the contract.
  • Interest payable.
    The credit usually has higher interest than the loan. However, in the credit you only pay for what you use, even if the limit is higher. On the other hand, in the loan you pay interest for the entire amount received from the first moment.
  • Objective of the financial product.
    Loans are frequently requested by small businesses or freelancers looking for a mattress to turn to at certain times of lack of liquidity. On the other hand, the loans are usually intended to finance purchases of individuals that are characterized by being punctual and of high amounts.