The difference between a credit and a loan


Many people confuse a loan with a loan and use these terms interchangeably. Meanwhile, both from a financial and legal point of view, these are two separate products. We explain how exactly they differ.


The difference between a credit and a loan – contract

The difference between a credit and a loan - contract

The loan agreement is defined by the relevant provisions of the Banking Law. In turn, what the loan agreement should look like is regulated by the provisions of the Code of Civil Procedure. In addition, any legal entity may enter into a loan agreement. Slightly different with a loan agreement, the conclusion of which is a banking activity, which means that only a bank can be a party to such a contract (Article 5 of the Banking Law states). An exception to this rule is the situation in which special provisions also grant such a right to another entity, eg Social Savings and Credit Unions. If an institution that is not a bank would conclude a loan agreement, then it would be treated as a loan agreement in accordance with the regulations.

The loan agreement is a publicly concluded agreement. By contrast, the borrower by signing the contract declares that he will return the same amount of money, or the same amount of things of the same species and the same amount. Thus, the loan agreement need not only report to money, although it is usually about it. The subject of the loan may also be other tangible goods. The loan, however, concerns only money, its subject cannot be things. 


Can the bank grant loans?

Can the bank grant loans?

In accordance with article 78 of the Banking Law, the bank may also grant loans. In this case, the relevant provisions relating to credit shall apply. On the other hand, loans can be granted to us by both a non-bank institution and a private person who has a specific pool of free funds. The only condition here is that the money borrowed must belong to the lender (it cannot be owned by a third party).

What the loan agreement should look like is specified in Article 69 of the Banking Law. According to it, for the duration of the contract, the bank undertakes to provide the borrower with a certain amount of cash, which must be spent for a specific purpose . However, the borrower is obliged to use the funds received in accordance with their intended purpose. He is also required to repay the amount borrowed together with interest within the period specified in the contract.

Credit and loan, however, differ not only in the regulations that specify them, but also in the form of the contract. The loan agreement can in principle take any form. Pursuant to Article 720 of the Civil Code, if the loan amount is higher than $ 1,000, the contract should be made in writing. However, it is worth knowing that failure to do so does not invalidate the contract.

The loan agreement must be in writing (as referred to in Article 69 of the Banking Law). It should contain information such as the parties to the contract, the purpose for which the loan was granted, the rules and repayment dates, loan costs, etc. It can also be in electronic form, which is equivalent to written form. The condition here is that the contract should be duly created, recorded, transferred and secured.


Costs and remuneration

credit loans

The issue of the lender’s remuneration is also included in the contract. Importantly, whether the borrower receives them depends on the will of the parties and the arrangements between them. The lender gets his salary in the form of interest charged on the loan amount granted. In turn, when we conclude a loan agreement, we know from the beginning how much interest we will receive. The bank also charges a commission for granting a loan.

If we take a loan, we must take into account such costs as commission, possible additional costs and interest, the amount of which depends on the amount of the loan. Depending on the contract, the interest rate can be fixed or variable.

Granting a loan can be free (for example, in the case of a first loan for free), but usually also comes with certain costs. The most common ones include the preparation fee, administrative fee, APRC and sometimes loan insurance. In addition, a loan repayment date is given to us, which does not necessarily apply to the loan agreement.

Moreover, the funds received under the loan become the property of the borrower. On the other hand, we get money from credit only for temporary use, but it does not belong to us (they remain the property of the bank).


Terms of receipt

Terms of receipt

What differentiates between credit and loan are also the conditions that we must meet to receive such a cash injection. We will get a loan when a financial institution (in this case a bank) verifies our creditworthiness. Creditworthiness is a real possibility of monthly repayment of installments, which means that we will be able to deal with the commitment we are asking for.

Applying for a loan in a private company involves a minimum of formalities. To receive it, all you need is your ID card and regular regular income. You also need a bank account, telephone number, registered address within the country and an email address. The fact that a non-bank loan is much easier to obtain than a loan is reflected in the costs – the loan is usually more expensive and interest-bearing.


Purpose of the contract

credit loan

We do not have to allocate the loan we are applying for for a specific purpose. What we need money for does not have to (but may) be in the contract. It is different with the credit we get for the implementation of the declared goal. This means that the borrower is required to use the allocated funds as agreed in the contract. If this fails, the bank has the right to demand immediate repayment. Assuming that we want to allocate money for any purpose – let’s reach for a consumer loan. It gives us a much greater opportunity to freely dispose of funds than a mortgage. Determining the purpose of the loan is mandatory and the bank has the right to control how we use this loan.


The difference between a credit and a loan – repayment method

credit and loan

The repayment of funds made available to the borrower is for a fixed period of time in the loan agreement. The loan agreement must therefore include a repayment date. Depending on the contract, the loan can be repaid in equal, monthly installments, in decreasing installments or once. In the latter case, we must immediately refund the entire amount. Such situations, however, are rare, because credit is a long-term commitment.

Comments are closed here.