Economy

Differences between Loan and Credit

There are different financial modalities in which an entity, natural or legal person can grant another a certain amount of money with the commitment to return it, according to a certain payment plan and assuming the increase in the cost for interest. In this order of ideas, some of these modalities are loans and credits, in which the lender gives the borrower a specific amount under agreements and conditions established in the contract.

In this way, we present this article with the intention of defining the most important characteristics that exist between a loan and a credit, where we will also indicate the differences that exist between the two.

Loan

A loan is understood as a financial operation in which a financial institution or person (the lender) delivers to another (the borrower) a certain amount of money with the condition that the borrower repays that amount plus interest costs. agreed within a specified period.

The amortization or return of the loan is normally carried out through regular installments established in the contract, which can be weekly, monthly, quarterly, semi-annual, among others. Therefore, the operation has a previously determined duration in the contract or agreement, where the interest that comes from the loan is also stipulated, which is charged on the total amount of money borrowed.

Thus, a loan delivers the total agreed capital at one time at the beginning of the contract. Usually, a loan is granted by a bank, although there are countless companies and people who are dedicated to issuing money loans to people and companies.

Credit

Credit is understood as the amount of money with an established limit that a financial entity makes available to a client, to whom said amount is not delivered at the beginning of the operation but may be used according to their needs through an account. or a credit card. In this way, in a loan, the entity will make partial deliveries at the request of the client, so that the client can dispose of all the money granted, only a part or nothing.

As the customer returns the money, he will be able to continue to have more, without exceeding the previously set limit. The credits are also granted for a specific period, but they have the particularity that when it ends it can be renewed or extended. Likewise, the interests of the credits are usually higher than those of a loan.

According to the definitions presented, it can be said that the differences between loan and credit are:

  • The interest that comes from the loan is charged on the total of the money borrowed while the interest that comes from the credit is charged on the percentage that the client has disposed of.
  • The interests of the credits are usually higher, since the investments are usually made in the short or medium term, while in the loan the investments are usually made in the long term, so the interests are usually lower.

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