Loan and credit: what is the difference and how are they similar?

We often meet with the terms "loan" and "credit". What is the difference between them an ordinary person may not be clear. Often, a loan is called a "bank loan". However, there is a big difference between these two concepts. To find out how a loan differs from a loan, you need to familiarize yourself with the economic nature of these two concepts.

The principal difference between a loan and a loan

In general, a loan is a sum of money issued by a banking institution for a certain amount of time. The main characteristics of the loan are pay, urgency and repayment. It follows that this type of relationship does not imply the extradition of borrowed funds for free or for an unlimited period. What can not be said about a loan, which can be not only in money equivalent, but also in the form of property. In addition, it can be given both on a non-reimbursable basis, and paid. Below, the concepts of "loan" and "credit" are discussed in more detail. What is the difference can be understood, if only to study their main features.

Credit

The loan has the following features and characteristics distinct from the loan.

• The relationship between the borrower and the credit institution that provides the loan is regulated both by the Civil Code and by financial legislation.
• Having studied the concepts of "loan" and "credit", what is the difference between them can be seen and the participants in this relationship. The creditor can only be a legal entity that has a license of the Central Bank to carry out credit operations. It can be banking institutions, microfinance organizations and others. A lender can be both legal entities and natural persons.

• Lending can only occur in cash.
• The lender does not own the borrowed funds, he plays the role of an intermediary, and the accumulated money is the debit deposits of third parties and the amount of interest received from other borrowers for other loans.
• The loan agreement between the bank and the borrower is mandatory for conclusion with any amount of the loan.
• If you look at the economic nature of the concepts of "loan" and "loan", what is the difference can be understood by the fact that lending should be paid, that is, the lender should establish an interest rate for the use of borrowed funds. In addition, he has the right to also include fees for escorting a loan. A loan can be free and paid.
• The level of the interest rate should not be lower than the refinancing rate at the time of issuance of money, otherwise the creditor will be ruined, as he has his obligations in the framework of debit deposits and own loans.

• The lender can develop targeted loans, which involve the transfer of funds received by the borrower, only for purposes that are stipulated in the loan agreement.
• You can also note the peculiarity of how a loan differs from a loan in a bank - that is, the debt on the loan is repaid at one time in full, and on the loan - in installments, according to the schedule presented in the loan agreement.
• The creditor has the right on legal grounds to demand from the potential borrower a pledge in the form of property or surety of third parties, as well as impose fines for late payment of the loan.
• Property that is under collateral is considered encumbered, and the borrower's rights to it are limited until the loan is repaid. If damage to property occurs, the bank has the right to demand full compensation from the borrower , even if the borrower timely pays all payments on the loan.
• The difference between a loan and a loan is that, in the case of a loan, the creditor is entitled, if the borrower refuses to return the borrowed money, to demand through the court the full repayment of the debt along with all the fines.
• The loan is characterized by the availability of special lending products with state support, which allow some categories of borrowers to receive money on preferential terms.

Loan

In terms of "loan" and "credit", the difference is that a loan does not have to be paid on a fee basis. A loan is one of the options of a loan offered by a bank or other credit institution. A loan can also be obtained, for example, in an enterprise in which a person works, and the like.

Types of Loan

So, the concept of "loan" is used more widely than "credit", and it has the following types:

• Consumer loan.
• Bank loan.
• Loan of property.

The loan of property implies the transfer of property, banking - this is a bank loan on a fee basis, and the consumer loan is issued when a person buys a thing, for example, household appliances, a car, etc.

And why do I need a loan?

Why do you need a loan, if you can take a loan and not pay interest on it? To answer this question it is necessary to understand the difference between a loan from a loan and what advantages they have.

To take a loan or borrow money from someone, you need to have a trusting relationship with the lender, and to achieve such a relationship you need to long and hard to try. And for obtaining a loan, you only need to confirm your creditworthiness with your credit institution . Today, banks have developed credit programs that allow you to get a small amount of money with a single passport. True, such lending involves higher interest rates, which is associated with the risk that the bank bears.

Similarity of Loan and Credit

There are similar points in the concepts of "loan" and "credit". What is the difference is already clear to the reader. And what are they similar?

Both of these concepts assume that borrowed funds or property (in the case of a loan) must be returned. The loan must necessarily be paid interest, as well as commission for the use of funds. In the case of a loan, a contract may also provide for a certain remuneration for the transferred property, which can be expressed in cash.