The terms “credit” and “loan” are often used interchangeably, although as a product they are very different from each other. Check how the credit differs from the loan.
Credit and loan – basic differences.
1. A loan is always a banking form. Loan not always
The loan agreement is always regulated by a legal form – banking law, according to which a loan agreement is considered to be a situation where the bank is obliged to make available to the borrower a certain amount of money. This product is intended only for the bank. The loan agreement is regulated by the provisions of the Civil Code, therefore it can be granted by an institution other than a bank – even by a natural person.
2. The loan requires a written agreement. Loan not necessarily.
The loan agreement is always concluded in writing – any verbal arrangements not included in the agreement are irrelevant, as are other unwritten issues. In addition, the contract specifies the date of repayment of the loan, the amount of interest and the schedule of installments paid. The Civil Code regulating the conclusion of a loan agreement, if it does not exceed $ 500, does not require prior signing of the contract.
3. The loan always costs, the loan does not.
Granting a loan is always payable, and the cost is a contractual amount, all commissions and interest. However, the loan does not have to be payable and there is no need to specify the date of its return.
4. In contrast to the loan, the loan is granted in the form of a transfer.
Another difference between a loan and a loan is the method of transferring funds. If the bank issues a positive credit decision, the money will be sent to our account in the form of a transfer. The loan can be taken in cash.
5. Funds from the loan are not the property of the borrower
Money obtained from the bank, under the loan agreement, is not the property of the borrower, and their return is necessary. Money obtained from another institution or natural person through a loan becomes the property of the borrower.
6. The loan is granted for the purpose specified in the contract. The loan does not require this
To apply for a loan, we must precisely specify the purpose for which the money will be allocated – it must be specific, such as the purchase of an apartment, car, renovation or consumption purposes. If the borrower allocates the sum raised for another purpose, the bank may request immediate return of the loan. However, the loan is not granted for a specific purpose, which is why we can spend the borrowed amount for whatever we want.
To sum up – what is the difference between a loan and a loan? We noticed that these two contracts differ significantly and can take other forms. The loan may be less formal, made in private conditions. A loan, regulated by strictly defined regulations, is a more advanced form of obtaining money. The purpose also differs – in the case of credit, it must be clearly defined – for which we allocate the funds obtained in this way. Another difference is the amount of the liability. The loan can be taken for a higher amount than the loan. There is also a significant difference in interest – the loan has an interest rate higher than the loan.