We often use the terms loan and credit as if they were synonyms, but are they really? In reality, they are two different financial products, with important differences between them. UCI gives you the keys to distinguish between both concepts.
Loan and credit What are they?
A loan is a financial transaction in which one entity or person (lender) gives another (borrower) a sum of money. The borrower agrees to return the money, together with the agreed interest, within a specified period, normally through regular payments or instalments (monthly, quarterly, half-yearly, etc.).
A loan, however, refers to the limit of money that a financial institution grants to the person who requests it by depositing the capital in a credit account. In this way, the client has access to the money provided based on the needs that he or she has, until the agreed limit of money is exhausted.
In the case of loans, if the client returns the money provided before its maturity, he will again have the possibility of using that amount before the end of the loan.
How and when do I get the money?
In a loan, the total amount granted is always transferred in one go to the client's account. In credit, payments can be partial, depending on the client's needs; always taking into account that the limit set for the loan cannot be exceeded.
How is interest paid?
In the case of loans, the interest is usually lower, but the entire amount borrowed is paid within a certain period of time.
With loans, however, you pay for the capital that has been used and not for the total amount that the entity makes available to the client. Thus, if nothing has been used, you would not have to pay interest.