The terms credit and loans are very often used interchangeably as equivalent words. Meanwhile, these are two different concepts, defining products that are significantly different. The only thing they have in common is the fact that they make a debt. Due to the increasing popularity of both loans and loans, it is worth to know the differences regarding both concepts. What is the difference between a loan and a loan?
Credit and terms of its provision
The loan can only be granted by the bank. There is a form of financial support, the principles of which are specified in detail in the Banking Law. The bank does not grant loans from its own funds, it uses funds deposited by its clients. The term loan means giving the borrower a certain amount of money for the period specified in the contract.
The credit agreement must be made in writing. Such agreement must include the amount of credit granted, repayment terms and repayment date, interest rate, amount of commission charged, conditions of possible change of interest, information about the total cost borne by the borrower under the loan granted to him, the form of loan repayment security, information about the taken bank’s operations in the event of delay or default of the loan, conditions for the borrower to withdraw from the loan agreement and the terms of the loan’s termination by the bank.
The loan granted should be repaid within the time limit specified in the agreement with interest. The banks that grant the loan each time verify the creditworthiness of the client. The possibility of granting a loan and its amount depend on the positive verification of creditworthiness and the analysis elaborated on this basis, in which the potential borrower will be able to repay loan installments. If his creditworthiness does not ensure repayment of the loan amount requested, the loan will be granted at a lower rate. If creditworthiness is not verified successfully, the loan will not be granted.
When applying for a loan, the purpose for which the loan is to be used must be specified. The bank grants a loan for a strictly defined purpose and may, if it is used by the borrower against its intended use, demand an immediate and complete return of the loan.
Loan and terms of its provision
A loan is a much broader concept than a loan. It can be provided by banks, loan companies as well as individuals. The subject of the loan can be both monetary amounts as well as things. Money or items intended to grant a loan must be the property of the lender. The rules for granting loans are set out in the Civil Code. The loan agreement is a transfer of the ownership of the money or items to the borrower, which will be obliged to return them on terms agreed individually between the grantor (the lender) and the borrower (the borrower).
To get a loan, you do not need to enter the purpose for which it will be used. Conclusion of a written contract is required for a loan exceeding PLN 500. At the lower amount, the loan agreement may be concluded in writing, but it does not have to be. The rules regarding the repayment and costs of the loan may be agreed between the lender and the borrower. A loan agreement may or may not be payable. Nor is it necessary to verify the borrower’s creditworthiness.
Comparison of differences between a loan and a loan
Parties to the contract
- The loan can only be granted by the bank.
- A loan may be granted by a bank, a loan company or a natural person.
- The loan is granted from funds deposited in the bank by its clients.
- The funds for granting the loan must be only the property of the lender.
The form of the contract
- The credit agreement must be made in writing in each case.
- The loan agreement in writing is required when the loan value exceeds PLN 500. With a lower loan amount, a written form of the contract is not necessary.
Subject of the contract
- The subject of the loan is always and exclusively a monetary amount.
- The subject of the loan can be both a monetary amount as well as another item.
- The loan agreement is always a paid contract.
- The loan agreement does not have to be payable. The loan may also be granted free of charge.
The purpose of the award
- The purpose of granting the loan must be clearly stated in the application submitted by the borrower.
- The loan is granted without specifying the purpose of the destination. The borrower has full freedom in its disposal.
The possibility of control
- The bank may, and even should, control the proper spending of the loan granted in accordance with its purpose.
- The lender is not able to control the disbursement of the loan.
Each form of financial support has its advantages and disadvantages. The loan is an indebtedness that provides greater security, but the procedure for granting it is more complicated. The loan requires less formalities, but poses a higher risk due to the lack of guaranteed legal safeguards.