Is there a difference between a loan and a credit?

When it comes to business and legal matters it is very convenient to be clear about the definition of words. Credit and loan are frequently used as synonyms. They are not.

Difference between a credit and a loan

Difference between a credit and a loan

The words credit and loan are used as synonyms. However, it is likely that a lawyer, at the time of writing a mortgage loan contract, does not consider that they mean the same.

The loan

The loan

The loan, by definition, consists of lending, delivering, something (money, thing) at once at the time it is requested, so that it can be repaid within a certain period. Also, it refers to the contract by means of which someone is obliged to repay the loan. The dictionary of the Royal Academy of Language says that the loan can be the amount of money generally requested from a financial institution.

If we limit ourselves to the issue of money, the loan is a financial operation involving a lender (who lends) and a borrower (who receives to repay).

The credit

The credit

In the case of credit we use the money little by little, only when we have to dispose of it and without using all the available money. A clear example of this is credit cards.

Credit cards have a certain line. For example if you approve a card with an S / line. 5,000, does not mean that you must necessarily take the S /.5,000 at that time. You can go using the amount you need from the line, you can pay it and use it again.

Subtle difference, but difference, after all.

Subtle difference, but difference, after all.

If you look at several websites of banks and financial institutions in the country, you will see that they offer credits and loans within their products. Advertising and marketing managers make no difference.

  • Some banks offer mortgage loans and other mortgage loans.
  • Some call their products “vehicle loan,” others, “vehicle credit.”
  • Some call “free availability credits” what others call “free availability loans.”
  • They offer “credits and loans.”

Why? I suppose that in the technological age it is more important to describe the products as people refer to them. And the normal thing is that we talk about credits and loans as if they were the same thing.

But, we must be clear that they are not the same.

Expert Language

Expert Language

Within the financial system, the most expert usually talk about a loan to refer to typical financial operations for natural persons, such as the purchase of real estate, vehicles or services such as travel and education.

In these cases, the definitions are perfectly fulfilled: they lend you money and you must return it; you sign a contract; and that happens, because you make a request to a financial entity.

The credit has a connotation of “rotating”, that is, it is an amount of money that is not delivered 100% at the same time; but it is available and, as it is paid, the quota is renewed automatically. It is as if one part of the credit was in use and another part available (in the style of credit cards).

In short, you can do the same as banks: use the words loan or credit as synonyms, except when you must sign a contract. At that time, read carefully what is the meaning they are giving to each word.

 

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