Used very often by most people
The terms loan and credit are used very often by most people as synonyms. However, in the financial field they correspond to different services.
The acquisition of a flat, a car or certain goods with a high price requires, as a general rule, to borrow a quantity of money to be able to meet the payment. The most used way to ask for this money is by requesting a loan or a bank loan. But sometimes, the differences between one and the other are not clear, which makes it difficult to choose one of them.
Key to choosing a loan or credit
The purpose of what this money will be used for is the key to choosing a loan or credit. The best product will be the one that best suits the specific needs of the applicant. Thus, if you want to invest in an item whose price is known (home, vehicle) the loan is recommended. This financial product is intended for the acquisition of long-lasting assets and in most cases they are personal loans, which are granted to individuals for private use.
On the contrary, credits are more useful for self-employed professionals or entrepreneurs, helping them to face momentary liquidity shortages and because their investments are in circulation, that is, in something that can be re-sold. Credit is also better for those people with regular incomes who want to have the capital available according to their needs at all times.
There are differences between them
Financially, both consist of providing funds to a third party over a period of time, but there are differences between them. A loan is the contract by means of which, the bank provides the client with a fixed amount of money, forcing it to return that capital plus the agreed interest according to a fixed payment schedule.
In the loan, the entity agrees to make funds available to the applicant up to a certain limit, under certain conditions and for a term. Interest is paid on the amounts actually drawn, since the client is not obliged to use all the money that has been made available to him. Therefore, the rest of the capital remains available in the credit account without accruing interest until it is used. The movements made by the client will be reflected in a current account.