A common mistake is to consider that a loan is equal to a credit. The reality is that they are two different financial products. In the next post we will take a tour to distinguish loans vs credits . Keep reading and discover which is the most convenient option for you.
To begin, you must know the concept of both products.
A loan is a financial operation where a person or entity grants a person or company a certain amount of money. When the loan application is made, the conditions are established, which are usually the following:
- Amount of money to request.
- Payment deadline.
- Amount of fees.
- Interest payable (included in the installments).
Once the aforementioned conditions have been agreed and the loan is approved, the lender will deliver the requested money. Loans are usually requested to acquire a property, a car, to pay for studies, or for emergencies.
For its part, a loan is a specific amount of money that a bank or commercial establishment makes available to its customers. This in order to create a commercial link or link. The amount of bank loans offered is determined according to the flow of money handled by each client. Therefore, if a client requests a specific amount, the bank will only approve the amount it considers.
On the other hand, the credits have a limit amount which can be used partially or completely, as long as the bank authorizes the transaction. An example of this are credit cards, and their corresponding monthly limit.
Loans vs credits
The best way to determine which is the most convenient option is to know the pros and cons of both products.
- Variety of low, medium or high value loan options.
- Lower interest.
- Quick and easy request.
- Amounts and fees agreed from the beginning.
- Availability of money in a short time.
- High Amount Loans.
- Non-renewable. At the end of paying a loan, a new application must be made to acquire another.
- Wide variety of interest rates, independent of each lender.
- Interest hike for early amortization.
- If the payments are up to date, the amount of money can be increased.
- The interest charged is only for the amount used, but not for the total credit.
- Greater number of options to purchase products in stores.
- High interest costs.
- Higher management fees.
- Big penalties when a payment is missed.
- Need for authorization to have a large amount of credit.
To be able to choose between loans vs credits, you have to determine the use of the money, and evaluate the pros and cons of each one. In this way it will be easier to choose the option that has the most advantages.
An example might be buying merchandise for a clothing store. With a credit of € 12,000 to buy merchandise for six months, we could probably have a maximum of € 2,000 each month. Settlements should normally be at the end of said period, if we do not want to incur additional interest. And if we cannot return it for any unforeseen event, we will not have available the next € 2,000 that we will need for the following month. That is, in the case of credit we have to be very sure that we can return the amount in a very short space of time, to regain the same amount, and avoid paying over costs in terms of interest.
On the other hand, if we request a loan of € 12,000, you can have all the money for the purchase of merchandise from the beginning. At the time of request, the monthly installments and fixed interests are established. The time to pay off the entire loan is also determined. Taking these figures into account, we can make our own calculations to estimate how much we are going to return month by month, and in what period we are interested in returning it.
We can say that in loans vs credits , we have two practical solutions to get financing. In Ideal Loans we compare the options that will help you get the ideal online loan for you.