Credit and loan – when to choose?

Sometimes it happens that we are in urgent financial need and we are looking for additional cash that would allow us to get out of the momentary deadlock. It also happens that we just want to relax on an exotic vacation, buy a new car or RTV or household appliances, but we don’t have the money for it. Then we can use the offer of the bank offering the loan or a non-bank company offering the loan. The financial product should be tailored to the possibilities of our home budget, repayment period and other factors. Credit and loan differ not only from the financial support provider.

Main differences between a loan and a loan

money cash

Some customers treat credit and loan as synonymous with these two terms. However, this is a mistake. It is true that both of these products are in order to be able to finance certain expenses, but they differ among themselves, among others legal regulations and general award rules. So what exactly is the difference between a loan and a loan?

The loan is regulated by the provisions of the Banking Law. Only banks can grant it (this does not mean, however, that banks do not grant loans). Provisions regarding non-bank loans can be found in the Civil Code. In this case, the lender does not have to be a bank, and it can be a non-bank institution or even a natural person or a family member (Read article: Family loan and taxation).

Another difference can be seen regarding the contract. The bank loan agreement is always drawn up in writing. It must contain information on the currency of the loan, the amount, interest rate, repayment date as well as the purpose for which the money will be allocated. In the case of loans, the contract is a bit more free. Most importantly, it does not have to be in writing. This type of financial assistance can also be provided free of charge, without setting a deadline for repayment.

Creditworthiness in the case of a bank loan

money cash

We have already written about creditworthiness in non-bank loans in several articles, including “What reduces creditworthiness?”, “What is the difference between credibility and creditworthiness?” Or “Loans without creditworthiness.” In this text, however, we will focus on creditworthiness for a bank loan.

Creditworthiness is treated by banks as the maximum loan amount that can be granted if certain requirements are met (e.g. repayment date, type of collateral). Analysis of this factor allows banks to find out whether the borrower will be able to repay their debts on time. The element that realistically translates into creditworthiness is the amount of net income. Income must be documented and come from legal sources. The creditworthiness is also influenced by the sex, marital status or age of the borrower, as well as the occupation. Banks, as well as loan companies, benefit, among others from the TLV database.

The most popular types of loans and credits

Loans can generally be divided into short-term and long-term. The former include popular payday loans. As a rule, these are small amounts of money that must be paid back within a maximum of 60 days. One of the highest payday loans is the Fast Cash lender. In this case, you can receive up to USD 6,000 for a slightly longer period of 65 days. Long-term loans are installment loans. Here the repayment period can be several months or even years. An example is the lender Hapi Loans granting obligations in the amount of USD 25,000 for a period of 24 installments (months).

Bank loans fall into slightly more categories. This is mainly due to the fact that the borrower must specify the purpose for which he wants to raise additional cash. The basic division are loans for individual clients and entrepreneurs.