A credit and a loan are forms of financing that can help people obtain the funds they need to spend on goods and services.. Both are banking products that provide capital to the applicant. However, there are some key differences between the two concepts.
What is a credit?
A loan is an available line of financing that can be used to purchase goods and services over time.. The person who receives a credit can spend up to a set limit and, generally, must pay interest on the amount used.
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Some examples of credit include credit cards, personal loans, and lines of credit. Among the main characteristics of a financial credit are:
- The interests of the credits are usually higher.
- Interest is only paid on the amount used.
- As the money is returned, more will be available
- Unlike the loan, the credit is renewed annually to allow the client to have said line of financing.
What is a loan?
A loan is a fixed amount of money that is lent to a person and must be repaid with interest over a specified period of time. A loan can be secured or unsecured, depending on whether or not the person applying for the loan provides collateral.
Some examples of loans include mortgages, car loans, and student loans. Among the main characteristics of a financial loan are:
- The operation has a previously determined life.
- Once all the capital has been amortized by paying the installments (monthly, quarterly, semi-annual), the operation is terminated without the possibility of accessing another (more money).
- Interest is charged on the total amount of money borrowed.
In summary, the main difference between a credit and a loan is that a credit is an available line of financing, while a loan is a fixed amount of money borrowed and repaid with interest.
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