Is a credit the same as a loan?
Many times we use the terms "loan" and "credit" without really knowing if we differentiate them well. Is there really a difference between credit and loan? Normally experts try to establish clear differences between the two words and you have even heard repeatedly the hackneyed question, "Don't you know the difference between a loan and a credit?"; however, if we stick to the definitions it should be concluded that they are actually synonymous. Despite this, in Spain they are commonly used as different words due to the meaning that financial institutions have generated of them. In summary, it can be said that they are the same and that they are used in a different way due to the uses and customs acquired. Let's start with the most basic: the formal definition of Loan and Credit: According to the RAE, with the word "credit", we refer to "amount of money or other means of payment that a person or entity, especially a bank, lends to another under certain return conditions ”. The Royal Spanish Academy includes nine other related definitions, however, it is the first of them that interests us. As for "loan", according to the RAE, we are referring to "amount of money that is requested, generally from a financial institution, with the obligation to return it with interest." Thus, from the same formal definition of the RAE we can conclude that, indeed, they are the same since both in the case of loan and in the case of credit it is an amount of money that is delivered to later be returned.
More in depth: Credits vs. Loans
Next, we go on to describe its most common meaning according to which several distinctions can be made between the use of these two concepts, based on their banking use: We speak of Credit when the amount of money granted has limits set in advance . Also when the client does not receive the entire amount at once, but uses small amounts depending on the needs within the established limit. Credit is also spoken of when the way to manage or access this credit is through a card or bank account or when the consumer only pays the interest derived from the money that is actually available, postponing the repayment of the principal upon maturity. Finally, this meaning is also given when this financial product is granted for a limited time and with a time horizon of 1 to 3 years, which, however, can be extended. This is why a credit policy in the financial world is associated with specific needs of money or circulating (unforeseen, timely payments, etc.), both in individuals and legal entities. An example of credit would be a one-year credit line of up to € 5,000 with an annual interest rate of 5% and a non-availability commission of 0.6%. In this case, as the bank "blocks" said amount for your needs, it charges you at all times 5% on the amounts used and 0.6%, much less, on the unused amounts. Throughout the year at any time you can choose to use from 0 to 5,000 euros. On the other hand, we speak of a Loan when the client receives all the money requested at one time or when the fixed amount granted by the bank with the loan must be repaid together with the interests agreed upon in a previously fixed term and without the possibility of be expanded. This concept also applies when the repayment of a loan is made through monthly, quarterly installments, etc. or when the interest on the loan is calculated on the total amount of money borrowed. An example of a loan is a mortgage loan in which the bank lends you, for example, € 80,000 to be repaid in 20 years, at 3% annual interest and which is used entirely from the beginning to pay for a house. In this case, therefore, there would be no unavailability commission since all the money is always being used.
And what about mini-loans?
If we stick to the previous definitions, a mini-credit, advance or quick loan operates in practice like a loan, since the entire amount is available at one time and must be repaid in a single installment with your next payroll or income. With regard to microloans, once again the ease of application is premium, in fact, it is the great difference with respect to loans to banks, since the latter usually make the process very complex for the nature of this product (small advance of payroll) while companies such as CréditoSí that are dedicated to granting quick loans are an agile solution to a specific problem, also at a higher cost.