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The difference between a loan and a credit



The two main products offered by the banking and financial sector are credit and loan. These two related terms have several fundamental differences, despite the fact that they form the core of the system of offers for borrowers.

What is a “Credit”

Credit is the legal expression of an economic (financial) obligation, under the terms of which one party undertakes to give the other party money, goods, other material goods, in return for reimbursement or payment. The term originated from the Latin word credere – to trust. The meaning of such legal relations is in the mutually beneficial conditions which are expressed in the following:

One party (the creditor) enters into a contract for the purpose of making a profit.

The second party (the borrower) receives the necessary material benefits (as a rule, money) to solve their current issues.

The described credit relations can be expressed in different forms. In addition to bank credit there are: leasing, commercial credit, factoring, loan, and other forms that are used in a variety of areas.

What is a “loan”?

A loan is a type of economic legal relationship whereby the lender transfers money (other material goods) to the borrower, who undertakes to return the mass received with or without interest.

The mechanism of cooperation between the parties is identical to a loan. Only some terms are changed, and the basis remains unchanged. Accordingly, there is no fundamental difference between a loan and a credit.

Moreover, experts note that the term “loan” (borrowing) is synonymous with “credit”, which is something more extensive. If we do not take into account the mechanism of legal relations in both cases, there are differences (mainly legislative).

What is the difference between a loan and a borrowing

In the vast majority of cases, the subject of the contract is money. If we take as the basis of a relationship in which individuals participate, then money is the subject of the contract in almost 100% of cases.

The similarity of the nature of a loan agreement and a credit agreement makes it difficult to find significant differences between them. Both can be interest-free, the subjects in both cases are natural and legal persons, financial institutions, states. It is advisable to use the following parameters to find differences:

  • Who has the right to grant credit and loan.
  • Forms of conclusion of contracts – credit and loan agreement.
  • Legislative restrictions.

At the same time with the concept of “loan” will be considered such an important product as a microloan. It is this form of a loan that is currently the most popular among the population.