October 25, 2019

Credit and loan – remember the differences

For many people, ‘credit’ and ‘loan’ are two designations for the same financial product. Although in the common sense both terms are used interchangeably, from a formal point of view they differ significantly, and the consequences of these differences have different legal effects.

Both credit and loan are financial products whose purpose is to incur a repayable debt. Let’s get to the differences though.


The loan is only available in the bank

The loan is only available in the bank

In accordance with art. 5 of the Banking Law (Act of 29 August 1997), loans can only be granted by specialized financial institutions: banks. Detailed regulations on consumer credit agreements are set out in the Consumer Credit Act.

Features of the bank loan agreement:

  •     it must contain a clearly defined purpose of lending (for what money will be spent),
  •     should be made in writing,
  •     its subject can only be money,
  •     must be paid (obligatory interest rate),
  •     should contain the following specified parameters: loan amount and currency, debt repayment terms and conditions, interest rate and rules for its change.

Importantly, from a legal point of view, the bank does not give the borrower the money under the loan agreement, but only transfers it for temporary use.

Warning! Not every credit product that a bank provides is a loan as defined by banking law. Please note that the debit line in your personal account or credit card limit do not meet the basic credit features listed above (they do not have specific repayment dates or installments), so they are not essentially loans, but loans.


Loan: from everyone to everyone

Loan: from everyone to everyone

A loan is a financial product with a broader meaning than credit. Loans can be granted not only by banks, but also by other institutions (e.g. loan companies, workplaces) and even natural persons (e.g. brother, colleague, neighbor or a person we have just met), as long as they have their own money.

The most important rules for the functioning of loans are regulated by the Civil Code (Act of 23 April 1964), but they are also subject to the provisions of the Consumer Credit Act.

Loan agreement features

  •     its subject may not only be money, but also objects,
  •     in the case of a cash loan, you do not need to specify the purpose of the funds raised,
  •     it does not have to be in writing (although it is recommended to draw up a document for loans in excess of PLN 500 – this will make it easier for the creditor to pursue any claims before the court in the event of problems with recovery),
  •     can be free,
  •     it does not have to involve the definition of a refund date or other subject of the contract (although loan companies do not use this option).

By granting a loan, the subject of its contract becomes the borrower’s property. Due to the fact that a loan – unlike a loan – does not have to be interest-bearing, loans allow you to obtain money absolutely free. Of course, as long as such conditions are set in the contract between the borrower and the lender.