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 be known.

Banks are specialized in providing financing to their clients and, among the different options offered in the market, loans and credit lines are two of the most used products by both regular customers and companies. However, sometimes there is no difference between a loan and a credit when, in fact, they involve different ways of accessing the financing we need.

The most relevant difference for the client is that, while a loan accesses all the money requested at one time at the time the loan is granted, in a loan that money can be requested depending on the needs of the client. let’s 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 loan, we are taking out money little by little, only when we have to dispose of it and without using all the available money.

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

In addition, with regard to the repayment term, there are also differences between loans and credits. Loans have a longer term, usually years, so they also have higher interest rates.

A loan www.worldwideklein.com/weblog.php/ and a credit also differ in the way in which the client returns the money he has received. In the loan, once all the principal has been amortized through the payment of the monthly installments, the transaction is closed without the possibility of accessing more money, unless a new loan is formalized. The credit works in a contrary way, usually, it is renewed every year to continue allowing the client to use that line of financing when he needs it. For example, one way to access a line of credit is to purchase a credit card.

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