Difference between a loan and a credit

Although its purpose is the same, its operation of a loan and a loan has some differences that should know

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Bank entities are specialized in providing financing to their clients and, among the various options offered on the market, loans and lines of credit are two of the most commonly used products for both regular and corporate customers. However, sometimes a loan and a loan is not differentiated when in fact, they represent different ways to access the financing we need.

The most relevant difference for the client is that while a loan is accessed for all the money requested at a time when the loan is granted, a loan may apply for a loan based on the needs we have. In a simple example, when we get a loan we “break” the bank and get all the money we need; And in a different way, with a credit we are slowly removing money, only when we have to have it and without using all the money available.

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The way to access money also determines the interests that are paid. The difference between a loan and a credit here, is that while the former is paid interest for all the capital they have lent us; On the other hand, in a credit, interest is paid for the money we have used, not for the total amount of money that the bank has made available to us, although there may be a commission of unpaid balance, that is, of the money that we have not used

In addition, as regards the amortization period, there are also differences between loans and credits. Loans have a longer term, usually for years, so they also have higher interest rates.

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A loan and a loan also differ in the way the customer returns the money he has received. In the loan, once the entire capital is amortized through the payment of the monthly installments , the operation is terminated without possibility of accessing more money, unless a new loan is formalized. The credit works in the opposite way; In general, it is renewed every year to continue allowing the client to use this line of financing when needed. For example, a way to access a credit line is to acquire a credit card.

It is important to note that although they make available to the client a certain capital, the difference in the mechanics between loans and loans makes them suitable for different situations: loans are more useful when a significant purchase is made or a quantity of money is needed We know in advance, while credit works as a timely support for expenses that we do not reach in a normal way.

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