Is credit and loan the same thing?

For a layman, these two financial products may seem to be similar to each other. However, there are so many differences between credit and bank loan that, when they are known, everyone will know why identifying them with each other is wrong.

Before indicating the main similarities and differences between a loan and a loan, it is appropriate to clarify which loan will be referred to. While only a bank, i.e. a financial institution acting in accordance with the provisions of the Banking Law Act, may grant credit, the lender may be a much larger number of entities. In this group, apart from banks and SKOKs, there are also non-bank lending companies, as well as other business entities and even individuals. However, they must provide loans from their own capital. This Article shall deal only with loans granted by banks. While the rules governing bank lending are contained in the Banking Law, the legal basis for lending is regulated by the Civil Code. However, according to Article 78 of the Banking Law, banks have the possibility to offer loans to customers using the relevant provisions concerning security of repayment and interest rates. This brings bank loans closer to credit, and thus can cause both these financial products to be perceived as the same or very similar.

First difference: amount

- Both the loan and the loan are granted by the bank on the basis of an agreement concluded with the customer;

-In the case of a loan, the maximum amount of financing granted may be several dozen or several dozen times higher than in the case of a loan.

Credit and loan shall mean a situation in which a customer incurs a debt with a financial institution. Both of these products could therefore be briefly defined as such, adding that the bank provides financing on the basis of a contract and in return for remuneration. What does that mean? Firstly, the fact that a bank cannot disburse funds from a loan or borrowing without first concluding a written agreement with the loan or borrower. It is quite a significant difference between bank loans and other types of loans (e.g. between natural persons), where there is no obligation to draw up a written agreement if the amount of the loan does not exceed PLN 500. Secondly, for both financial products, the bank charges a fee for granting them. It may take the form of interest on the amount borrowed or credited, as well as a commission for the mere fact of providing financing. As a general rule, a bank loan is granted for a much lower amount than a loan. A lender may reach for a loan in the amount of PLN 1,000 and the maximum amount he may apply for is usually between PLN 3,000 and 5,000. A loan is a liability for a much higher amount, which usually ranges from several dozen to several hundred thousand zlotys (in the case of mortgage loans).

Second difference: purpose of financing

- The loan may be used for any purpose and, in the case of certain types of loans, the funds must be used in a specific manner..

The names "mortgage" or "car loan" probably say it all - the money paid out by the bank to the borrower's account must be used only in a pre-determined manner: for the purchase (or renovation) of a house or flat, or for the purchase of a new or used car, respectively. In the case of loans, the customer of the bank is in no way obliged to spend the money paid out by the bank for a specific purpose. The loan can be used according to the current needs of the borrower: to renovate the apartment, purchase new furniture or household appliances, or to go on holiday abroad. It should be pointed out that the distinction between a loan for a specific purpose and a loan for any purpose is not so clear at present. Banks still offer consumer loans, which the borrower can also use for any purpose. Compared to loans, they are granted for a longer period and for a higher amount.

Third difference: repayment term

- The repayment term of a bank loan is usually shorter than that of a loan.

Banks now offer their customers loans with a repayment term of up to 30 or 60 days. A longer repayment term is usually 6 or 12 months. In a word: a bank loan is granted for a short period of time. In the case of bank loans, the opposite is true - bank credit is a financial product with a long-term repayment term. A consumer loan can be taken out for e.g. 96 months and a housing loan is usually granted by banks for 25 or 30 years.