Do you know what the difference is between a credit and a loan?

Almost all people think that there are no differences between a loan and a loan and in reality they are very different products. Do you want to know what they are? here we go:

The loan

The loan

The loan is a financial operation in which a lender, which can be an entity or a person, gives a borrower a fixed amount of money at the beginning of the operation. The main condition is that the borrower returns that borrowed amount plus the sum of interest. Interest is agreed between the parties based on a specific term.

The repayment of the loan (repayment) is based on more or less regular amounts or fees during that period. The loan therefore has a previously specified life and interest is charged on the total amount borrowed.

The credit

The credit

A credit is an amount of money, with a maximum limit set, that an entity makes available to a customer. This amount is not delivered suddenly at the beginning but can be used according to needs through the use of an account or card.

The client may or may not have all the money, a part or nothing. As the client returns the money, more may continue to be available, without exceeding the limit. The credit does not have a previously specified life and interest is paid for the money provided. Although a minimum can be charged on what is not provided.

Credits can also be granted for a term, but unlike loans, when it is terminated it can be renewed or extended.

The interest on loans is usually higher than on a loan, but, as we have already said, it is only paid for the amount used.

What suits me best?

  • The credits are more suitable to cover the mismatches between collections and payments of the companies.
  • Loans are usually granted to finance the acquisition of a particular good or service: a car, some studies, a home renovation, etc. Loans are more useful to cover mismatches between collections and payments and to face temporary periods of lack of liquidity. Loans are usually more suitable for companies than for individuals.