Credit and loan – people often use these two terms interchangeably. This is a big mistake, because in fact there are big differences between them. It is worth knowing them, because probably everyone in life will get a loan or a loan. In that case, what is the difference between a loan and a loan? What is worth knowing about these two types of debt?
Who can grant a loan and who can grant a loan?
The most important and best known difference between a loan and a loan is who can grant it. As you know, loans are on offer from banks and loans from loan companies. Although under the Consumer Credit Act, a loan agreement is also a consumer loan, but this term is usually not used. It is also worth mentioning the legal basis for loans and credits. The loans are governed by the Civil Code – it is under it that loan companies and private individuals who decide to grant a loan must act. The operation of banks, including granting loans, is regulated by a special Banking Act. It protects both the interests of consumers and the banks themselves. As you can guess, the law is more stringent towards banks than loan companies, which have much more freedom of action.
What characterizes a loan?
The loan operates on the basis of a (necessarily written) agreement between the borrower and the bank. The contract must specify precisely what amount we borrow, why and how we plan to pay it back (i.e. for example through 12 equal installments). There is a big difference between a loan and a loan here, because the loan cannot be granted free of charge. The bank may require us to present how we spent the funds received, but in the case of cash loans it does not use this option in practice. However, control over the use of the funds allocated is standard in the case of mortgage loans (whether for the purchase or renovation of real estate). In addition, loans are not granted to persons who are unable to prove having a stable source of income. A permanent source of income can be not only a contract of employment, but also a mandate contract, contract for specific work, retirement or disability pension.
Credit or loan – what is more profitable?
As follows from the above information, the loan is something relatively unformalized. Up to USD 1,000, it doesn’t even have to be saved, and all you need is an oral contract. You can conclude a loan agreement with both the loan company and a private individual. Since it does not even require a loan repayment date, it protects the interests of both parties less strictly. The Banking Law regulates the activities of banks extremely accurately, so there is no possibility for a surprise to happen. Credit is a safer and more predictable solution, and is generally less expensive.
The difference between a loan and a loan is that the loan cannot be free and the loan cannot be. Many lenders even use this option, for example by offering the first payday loan for free. Still, loans tend to be more expensive than loans. Why? Lending is associated with a higher risk. Lenders do not have as strict requirements as lenders for, for example, creditworthiness or credit history. Therefore, they have to protect themselves against other losses – above all by increasing the interest rate or commission.