Unless we have certain financial knowledge, it is very possible that we have confused more than once the concepts of credit and loan .
Many times we use words that we think mean the same thing and happen to be misused. An example could be the words “do” and “create”, which we use many times as if they were synonymous words but far from it. All this mess can lead to the occasional confusion or small mess in a meeting with friends, but little else. The problem is when we confuse words that are similar but do not mean the same and have serious consequences for us. Therefore, in Astro Finance we want to clarify the differences between “credit” and “loan” .
We are sure that at home or at work you will have heard many people mix both terms to refer to the same action. Well, that person is totally wrong And after reading this article you may be able to explain perfectly what was wrong.
What is a loan?
First of all, let’s see what a loan is. The financial operation is known as a loan in which an entity delivers a fixed amount of money to a person, who has to repay this money (plus interest) in a previously established and regular fee.
What is a credit?
While a credit is a virtual amount of money borrowed with a fixed limit that the entity places on the client. That is, the customer cannot dispose of all the money at once. This is an important difference to understand the concepts.
Differences between Credit and Loan
Now that we have clear definitions of both concepts, let’s see the main differences between credit and loan :
- Amount of Money: Loans offer a higher amount of money, while loans usually offer amounts less than 10,000 euros.
- Frequent Uses: Normally, due to the amount of money requested in each of them, loans are used for large expenses or investments such as a home or car, while credits are used for smaller expenses at certain times when a person or company needs liquidity but does not know the exact amount they will need.
- Return Terms: At this point we find a clear difference. The loans are usually medium and long term operations, while the loans have shorter repayment terms.
- Interest: In this aspect, the credits charge you a higher percentage of interest, since they do not ask you so many requirements to grant you the credit. While in loans, interest rates are much more fixed and small.
- Guarantee: In general, loans are usually personal, granted to individuals, so they usually require guarantees or personal guarantees.
In short, these are the big differences between loans and credits. Now you are ready to withstand those desktops discussing economics. We hope that this article has resolved your doubts and serves to make future economic decisions.