Credit and loan. Discover similarities and differences

Credit and loan are words that we often use interchangeably. Meanwhile, credit and loans are not the same.

Even if we do not know exactly the differences between the two, we intuitively feel that the loan is something “bigger”, “more serious” and the loan – “smaller”: for a lower amount, for a shorter period. And indeed, intuition serves us quite well in this case. Generally, it is, but … not always.

Legal basis

bank

The loan agreement and loan agreement are regulated by different laws. Provisions regarding the loan can be found in the Civil Code (art. 720-724), while the loan – in the banking law.

Despite the often blurred line between credit and loan, the question of who can give credit and who can grant loans is extremely clear. Loans are the exclusive domain of banks and credit unions. On the other hand, virtually anyone can grant loans; it can be a natural person, it can be and the company does not preclude it from being a bank.

There is also no doubt as to what is the subject of the loan agreement – it’s always money. Money can also be the subject of a loan, but it doesn’t have to be. You can also borrow things, but it is important that they are marked only as to the genre.

Contrary to intuition, you can’t, for example, borrow someone … your car – or at least it is not a loan within the meaning of the Civil Code. That is why car rental companies do not rent cars at all but rent them. If it was a loan agreement, you would have to pay the same rental car, like the one that rented. As it is a lease agreement – you have to give back the same.

The loan must have a purpose, the loan must not

At least that’s the theory. In accordance with art. 69 of the Banking Law, a loan is a cash made available to the borrower ‘for a specific purpose’. And indeed, in the banks’ offers, we will find a whole catalog of products that differ precisely in purpose: investment loans, revolving loans, etc. The loan has no purpose: the borrower is “not interested”, for which his creditor will allocate the available funds (or items).

In practice, however, the loan does not have to have a clearly defined purpose. An example of such a loan is a revolving loan in your account.

Creditworthiness test

Creditworthiness test

An important feature of the loan is that banks can grant them only to persons and companies that have creditworthiness (except for loans granted after the submission of a remedial program or with special collateral). In the case of loans, there is no obligation to test creditworthiness, although many lenders still check their clients in this respect.

What is particularly important, however, is the fact that the bank has the possibility of ongoing monitoring of the allocation of funds in accordance with the declared purpose and ongoing monitoring of creditworthiness. If there is a problem with the latter, the bank has the right to reduce the loan amount or terminate the contract, demanding an immediate refund. In the case of loans, there are no such entries.

Art. 74. During the term of the loan agreement, the borrower shall be required to provide – at the bank’s request – information and documents necessary to assess its financial and economic situation and enabling control of the use and repayment of the loan.

Art. 75. 1. In the event of a borrower’s failure to comply with the conditions for granting the loan or in the event of the borrower’s loss of creditworthiness, the bank may reduce the amount of the loan granted or terminate the loan agreement

The notice period referred to in paragraph 1, unless the parties specify a longer period in the contract, it is 30 days, and in the event of a threat of borrower’s bankruptcy – 7 days.

The loan is easier to get

The loan is easier to get

Usually :-). Due to the lack of obligation to examine creditworthiness, the loan is – usually – “easier to get”. Of course, something for something: the greater the risk of the creditor is that the price of the loan will probably be higher.

However, lenders do not always withdraw funds with a light hand. In our case, the decision to grant a loan (one would like to write a “loan” :-), but in this text, we will exceptionally avoid colloquial terms) is preceded by, among others analysis of the history of the bank account and the history in BIK, which allows us to verify … the creditworthiness of the entrepreneur. We only grant loans to companies that we can expect to pay back their debts without problems.

Formalities

Another consequence of the differences in the obligation to examine creditworthiness is that loans are usually granted faster and based on a much smaller amount of formalities. While in a bank you should take into account the fact that you will have to gather solid documentation of the company’s operation and fill out extensive forms, the loan will usually be much simpler in this respect.

An example is again Good Finance? Formalities are limited to completing a short application online.

Costs

In theory, credit always costs, a loan does not have to. Among the borrower’s obligations, banking law mentions the payment of interest and commission. However, life provides numerous examples of “free” loans. For example, “real 0% installments” in supermarkets and home appliances, or – in the case of banking products for companies – credit cards.

Why do we write “free” and not simply free, without quotation marks? Because such a loan, despite the lack of fees, in one way or another cost – or at least is associated with additional conditions. By buying on a 0% installment, you will most often not be able to negotiate the price of the product – the cost is the lack of a discount, which sometimes the seller would be willing to give. In turn, the lack of fees for the use of credit cards usually depends on the turnover on the card account, and the lack of interest – on the repayment of the entire debt for a given period.

In turn, the Civil Code does not mention the cost of the loan, it merely states that the borrower’s obligation is to return the item or amount borrowed. Nevertheless, loans can also have – and as you know, they usually have – their price. Sometimes, as in the case of so-called payday loans, very high.

Amount and amounts of the loan

Amount and amounts of the loan

Intuition rightly tells us that loans are usually granted for a shorter period and lower amounts. However, this is not an iron rule. When we think about investment for several hundred thousand zlotys, it would actually be rather difficult for us to find a loan that we could finance. In this case, the solution will be a loan, so without a visit to the bank probably will not do.

However, we can easily find, for example, loans granted for a period longer than one year and loans for a shorter period (especially among consumer loans).

The fact that we often use the terms “loan” and “loan” interchangeably reflects the similarities between them. Despite clear differences in legislation, in some cases, the practice has blurred the boundaries between these products.

Despite this, the differences are usually clear. Intuition indicates them quite accurately. It is worth remembering the keyword: usually.

Loans are usually “easier”: granted for a shorter period, lower amounts, with limited formalities. In turn, loans are “more serious”: they are granted for higher amounts and for a longer period of time. Unfortunately, especially in the case of micro-entrepreneurs, they are often associated with very time-consuming, even frustrating formalities.

As if that was not enough, the result of such efforts is uncertain: about 1/3 of loan applications of small and medium-sized companies are rejected by banks.