What is the difference between credit and loan? If you have doubts about whether there is a difference between credit and loan or if they are similar but with a different name, we will see what each financial product is about and its differences and similarities.
What is the difference between credit and loan?
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Although many generally consider loans and credits as synonyms, they are surprised when they discover that they are not similar products and that when they ask for it and that it is granted, there may be differences.
What is a loan?
The loan is defined as a financial operation in which the entity – bank or cash – or person – lender – grants the borrower a defined amount of money through the loan requested and granted under certain conditions and requirements, in exchange for the borrower return said amount of money plus interest previously agreed within a defined period.
The repayment or repayment of the loan is made from regular installments that can be monthly, quarterly, semiannually, during that period. The loan has a predetermined term and interest is charged on the total amount of money granted.
What is a credit?
The credit is the amount of money, with an established limit, granted by a bank or cash institution to its customers. While it is worth clarifying that the client is not granted that amount all of a payment at the beginning of the operation, you can only use it depending on what the credit is for, using an account or credit card. The amount will be partial payments as requested by the client. The client can dispose of the total money granted, or a part or even nothing.
The client will only have to pay interest for the money he has arranged, although the entity may charge a minimum commission on the balance of the money not disposed. As they return the money used, the customer can continue to have more money, always respecting the limit.
Differences between loans and loans
The main differences between credit and loan are the following:
- The credits are granted during a term, and unlike the loans, when the credit is terminated they can be renewed or extended.
- Another difference is that the interest on loans is higher than the interest on a loan , although with the advantage they only pay for the amount used.
- While loans are granted to finance the purchase of a good or service as a vehicle, for studies, to reform a home, and other purposes.
- The credits granted for example to cover mismatches between collections and payments and for when the client or company does not have enough liquidity or not.
Credits are usually more recommended for companies than for people. And loans for more particular needs.