When we are not familiar with the technical words of the banking sector, it is usual to treat loans and credits in the same way. It is true that these two products are achieved in one way or another financing, but although their objective is very similar, their conditions at the time of operating are different. For this reason it is very important to take into account what are the differences between a loan and a loan.
What is a loan
When we are hiring a loan, we are talking about a financial product by which one party delivers a quantity of money to another. This amount is fixed and is delivered at one time, establishing a return conditions for which the full amount borrowed plus a stipulated interest will be reimbursed. This refund is usually made through a monthly fee, although it is also possible to agree on installments in another term.
Therefore, in a loan we know from the beginning of the operation what is the amount we have, how much we have to pay back (what interest is your contract) and how long we will be paying, ie the life of the loan.
What is a credit
If we talk about a credit, we are not referring to the immediate delivery of a quantity of money, but of the granting of a maximum amount that the entity makes available to a person. The customer decides which is the amount he wants to use and has it through his current account or a credit card.
Therefore, when we talk about a loan, we are talking about a type of financing different from loans, because in the first we can access the money in a fractional way, paying the corresponding interest for the amount that has been used. In addition, it has another basic differentiating aspect, and that is that as you decrease the debt, you can make use of a higher amount of available. For this reason, it can be said that the life that has a credit depends on the use we give it.
Having a basic concept of what a credit is and what a loan is, the next step is to know when each one is used and what conditions they offer. These points must be taken into account, because a bad decision may cause us to pay more for our financing or even delay the possibility of having liquidity as soon as possible.
When you should ask for a loan
You should think about asking for a loan when you need financing to buy a good or a service. For example, buying a car, renovating the house, paying for studies…
To get this type of financing, you must go to a financial institution, who will perform a risk analysis and offer you conditions depending on the result of that study. As you see, these operations involve a process, so it is not an immediate money.
It must be taken into account that the conditions of the loans, despite being a slightly slower process, are more advantageous than those of any credit.
When to ask for a credit
A loan is designed to get liquidity quickly, so the conditions they offer are usually worse than in the case of banks. Normally, the risk analysis carried out for the granting of a loan is low, therefore, the conditions offered by financial companies are more damaging.
Keep in mind that with the credits you can have the money in your account in a matter of minutes, so they are a form of quick financing often used by companies.
Conditions of loans and credits. Aspects to consider
If we want to access funding for any reason, the first thing we need to know is what type of product is most suitable for what we need. Everything depends on the destination of that money and the urgency with which we need it.
But, although there are several differences between credits and loans, the conditions they offer are governed by the same types of commissions or interest, this means that sometimes we do not see the differences between loans and credits.
Therefore, when we go to contract a loan or a loan, we must pay attention to the following aspects:
- Interest rate It is the point where everyone is usually fixed, although there is more to take into account. Great care when we hire a loan, as it is usual to offer us the information on a monthly and not annual, since they tend to have a high interest, always above those offered by personal loans.
- Fees for the creation of the credit or loan. Especially in the case of loans, it is usual for one of the expenses to be due to the opening of the financing. This usually corresponds to a percentage of the requested capital. In the case of loans this commission does not usually appear, in exchange, especially when we talk about credit cards, we have a maintenance expense.
- Commissions for cancellation. In many cases it may happen that we want to cancel the loan or loan that we have pending before the expiration date, thus saving us interest payments until the end of the life of the product. It may be a good option, but we must take into account when hiring the loan that there is no clause for which we must pay an amount to make such a cancellation.
- Interest for delay. One of the problems that usually occurs in financing, is the high default interest included in the contract. It is true that when we hire a loan our goal is always to pay on the date that corresponds, but some type of mishap can occur for which we can not pay on time. It is very important to take this figure into account, and not allow abusive delay interest to be applied. It is considered that they are not acceptable, when they represent more than 20%.
Taking into account all these details, it is important that you make an accurate decision on the type of financial product to choose, since the conditions and the way of use can be very different.