The terms loan and credit are used as synonyms. But the fact is that synonyms are not. Banks and non-banks use both terminology when it comes to borrowing money. But why is that so? In this article, we’ll try to find the answer to this question.
What exactly does the term loan mean?
First of all, borrowing something between two individuals. It doesn’t have to be money, it can be 20 kg of potatoes. It is a one-off act that it does not contain, but may include an obligation to pay interest. A loan agreement arises – either in oral or written form – when the subject of the contract is physically sold to the debtor. If not, the contract is void. These elements are governed by the Civil Code. If a unique thing is lent, such as a work of art, it is not a loan, but a loan, which is a completely different contract.
Loan means borrowing money and it is presumed by law that the borrower will pay interest. The Loan Agreement is governed by the Commercial Code and, from the point of view of the contract, it does not matter whether a contract is concluded between entrepreneurs or between a natural person and a financial institution. The contract is also valid if the money is not transferred at the time the contract is signed, the credit agreement is the creditor’s obligation to sell the agreed amount to the debtor in the future. The borrower, in turn, undertakes to return the borrowed money together with interest to the creditor in the future.
How is it possible that banks also offer loans?
Despite the legal definitions we have clarified in the previous paragraphs, the term loan is used in credit institutions for loans that are not secured by real estate. A loan is a type of consumer loan and the sole security of a financial institution is the applicant’s regular income.
Non-bank loans offer loans of various types, and some banks (such as Slovenská sporiteľňa) distinguish classic loans, especially mortgages that serve to finance construction or purchase real estate, from others. purpose loans that call loans. The maximum eligible loan amount is much lower than for loans and the conditions are much worse. Loans are offered by banks with better conditions and in most cases applicants can also use different types of state contributions and subsidies. It is therefore important that if we need a purpose-free loan, let’s just ask for the amount we really need, because higher interest will unnecessarily overcharge the thing we buy from that money.
How to choose from offered financial products?
We now see that the term loan and credit in financial institutions can mean the same financial product. Therefore, it is very important that we have sufficient information before deciding. But how is a prudent applicant informed? It is best to compare different financial institution products on comparison sites such as the Good Finance.
If we know the amount we need and the amount we can pay monthly, we’ll put it in the calculators and then compare the financial institutions’ bids. But how to compare? Similar product is Modern loan from Slovenská sporiteľňa and Digital loan from Tatra Banka. This is the indicator of the APR – annual percentage rate of cost. This will take into account not only the interest on the loan, but also any other charges that the provider may charge to us for the duration of the repayment period. Of course, it is necessary to compare offers with the same parameters.
- financial institution
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