Differences between credit and loans
Unless you have some financial literacy, probably every one of us have occasionally confused the terms ‘credit’ and ‘loan’. Surely we will have used without distinction to refer to each other, and we’ve said that about “I have to borrow” or “I will ask for a loan” believing that they mean it. The truth is they are very different, and it should be clear a few concepts on credits and loans:
• The loan the bank makes available to the customer a fixed amount and the customer becomes liable to repay that amount plus a commission and interest on the agreed deadline.
• The financial institution credit available to the client in a credit account, the money that is needed to a maximum amount of money.
• The loan is usually an operation in the medium or long term and the amortization is usually done through regular payments, monthly, quarterly or semiannually. Thus, the client has the opportunity to organize themselves better when the payment plan and your personal finances.
• Generally personal loans are granted to individuals for private use, therefore, usually require personal guarantees (guarantees) or collateral (pledges or mortgages).
• The loan amount is usually granted enters the customer’s account and it must pay interest from day one, calculating the interest on the amount that has been granted.
• In a credit only pay interest on capital employed, the remaining money is available to us but without necessarily having to pay interest.
• The loan can not be renewed at the expiry of the deadline would have to make a new loan agreement.
• At the end of the period, the credit supports the possibility of renewal and expansion, as often as needed, the maximum available.
• The loans typically have interest rates lower than credit, although, as we have seen before, it must pay interest on the entire amount awarded.
• The loan interest rates are usually higher than the loan and the repayment period is generally shorter. Although it always depends on the conditions agreed with the entity.
• We generally use the loans to purchase long-term assets such as houses and cars, ie products that we know its price.
• The credits, however, tend to use professionals, entrepreneurs or self-employed, in need of liquidity at certain times and do not know exactly when or how much they will need. Also people with regular income who want to have money according to their needs every time.