The majority of people, in everyday speech, usually use the words ‘credit’ and ‘loan’ as synonyms, that is, they understand the same under the two words. This does not cause confusion, we understand each other well, but there are differences: in the economic and legal language, the two terms are not exactly the same.
It is no coincidence, however, that the difference between them is blurred in everyday speech, because they are closely related financial concepts.
Even though we understand each other and do not have to be precise in each case and use the terms of the language perfectly, it does not matter if you are aware of the difference between the two concepts, as it can be an advantage when you are interested in banking credit products. or plans to enter into a loan agreement in the future.
When it comes to credit
The creditor undertakes to make available a credit line to the claimant for which the debtor pays a fee. This does not necessarily mean that the claimant is actually using it, in whole or in part. But if this is the case and the terms and conditions of the credit agreement are met, a loan agreement or other credit operation can be made up to the limit of the credit line. Thus, the debtor does not automatically or necessarily receive the money on the basis of the credit agreement (either because he will not need it at last or because certain contractual conditions are not met), but it will provide the possibility of the loan up to the limit of the credit line.
In the case of a loan
The creditor is obliged to pay a specific sum of money, as defined in the loan agreement, and the debtor to repay the money to the creditor at a later date and to pay interest. That is, in the case of a loan, we can talk about giving money to the debtor and making it available. In the everyday sense, this is the concept most often referred to as credit. So: when we get the money with a later repayment obligation (whether from a bank or an individual, for example), we get a loan and not a loan.
Concepts you can meet
Without completeness, some of the common concepts that you encounter in practice with loans and loans with banks are presented with some common concepts. He understands the essence of each method and product better by knowing the exact difference between the loan and the loan.
- Credit assessment : A bank procedure whereby a bank examines the creditworthiness of a given client (based on statutory and own risk analysis criteria) and decides whether or not to grant it and, if so, under what conditions. This is the basis for a future loan agreement.
- Loan Agreement: A contract between the creditor and the debtor, specifying the amount of the loan the creditor provides to the debtor and the conditions under which the debtor pays the loan. The terms include the time of repayment (if applicable, the date of payment of the installments) and the amount of interest payable on the loan. The loan is given to the debtor after the loan agreement has been signed.
- Reimbursement: The debtor must repay the loan and interest on the basis of the loan agreement. In the case of larger loans, repayment is usually made in regular, small amounts, which include the interest accrued so far and the proportionate share of the principal debt.
- Personal Loan : A personal loan to a client after a credit assessment, a loan disbursed under a loan contract that you can freely use and repay under the terms of the loan agreement.
- Overdraft: A credit product attached to a bank account, the essence of which is to provide the customer with a credit line for a given amount of credit. If the money on the current account is running out, the customer has the opportunity to use the bank’s money (as a loan) up to the amount of the credit line. It is not obligatory to live with it and you can decide what amount of credit to use in a given period.