What is the difference between a loan and a credit

The need to get fast money to finance some activities, from buying a house to a trip, is an issue that is the order of the day. Some of the methods to obtain the necessary funds are by requesting loans and credits . In principle, they seem two very similar forms, but in practice they are not so much. In .com we give you the keys so that you know the differences between a loan and a credit, as well as knowing how to choose the one that best suits your needs.

What is a loan?

In general, both are mostly used in everyday life, without being one of them predominant over the other. We will start by giving some details about what a loan is.

A loan is a type of operation in which an entity or person lends the money (called a lender) to another entity or person (called a borrower). This amount is fixed and is determined at the beginning of the contract as well as the determined time in which said amount must be returned to the lender.

Also in the contract will be determined the form of return of the amount, (monthly, quarterly, annual, etc.) as well as the amount and nature of the interest that will be paid. With this we understand that it can be a fixed interest, the same throughout the return period, or variable according to an index determined as a reference. That is, in a loan at the same time it is contracted, we already know the form and periods of return, as well as all the money that we have and all that we must return. The money is received immediately .

What is a credit?

When we ask for a loan, we request that we make available a limited amount of money that we can use when we need it. That is, we do not receive an immediate amount of money at the time we ask for the credit, but we can have that amount of money during a certain period of time. Therefore we can make use of it in a variable way according to our needs.

In this way, we only pay interest for that amount of money we have used. In any case, we have to pay another amount of interest, usually much lower, simply for having a loan. This is because the entity that grants us the credit must maintain an availability of money equivalent to the amount we request, and that has a cost.

As in the loan, at the moment we close the contract we have to determine in what way and with what interests the return of the amount of credit we use will be carried out.

When is each one usually used?

Therefore, depending on the needs we have, that is, a fixed amount of money or a variable amount, we will consider requesting a loan or a loan. Generally, the loan is usually used for considerably high and fixed expenses, such as the purchase of a house or a car, and the credit for more specific moments in which we need money that we do not have, for example to go on vacation or to pay for a specific reform.

Being aware of the interests and conditions offered by the entity, in addition to your own needs, will be key to making the right decision.