The concepts of credit and loans are often used interchangeably with each other, which is a big mistake. There are many differences between them. Both in the case of loans and loans, we deal with borrowing money, but the characteristics of such a commitment are different. If the loan can be granted by any entity, even a private person, the loan is the domain of banks and cooperative savings and credit unions.
What is a loan?
The loan should be understood as a liability granted to the borrower by a financial institution authorized to take banking activities. It makes it possible to provide the borrower with a certain amount of cash, which he undertakes to return to the lender for a fixed period of time in the loan agreement, including accrued interest. Before the customer receives a loan, the bank will examine its creditworthiness, which is defined as the real possibility of monthly repayment of the capital and interest installments of the institution granting the liability. Creditworthiness depends on the amount of regular income from the client’s income and on the amount of its liabilities, including for maintaining a household, a car, or paying maintenance and other financial burdens.
What is a payday loan?
A payday loan can be treated as a less demanding version of the loan. Most often, it is provided at a lower value than a loan, and all the rules of its making available by lenders and borrowing by borrowers are included in the Act on consumer credit. The lender can be any person or institution that has the amount of money desired by the borrower. The funds are transferred on the basis of a loan agreement.
Similarities and differences between a loan and a payday loan
Both in the case of a loan and a payday loan, we deal with the provision of one website by the other a certain amount of money, based on a written or verbal contract. However, the similarities between these two types of financial liabilities are largely over.
The loan may only be granted by banking and cooperative savings and credit institutions. Both banks and credit unions can also offer and provide loans to their clients. The client may also receive a loan from business entities, natural persons, legal persons and other institutions, provided that the lender is the actual owner of the borrowed money. Therefore, loan companies can run their business and grant loans only on the basis of their own capital, which does not come from credit at the same time.
An interesting fact about the factors differentiating the concept of credit and loan is the fact that with a loan, the repayment date of the liability does not have to be determined between the parties, and with the loan, such a record must be included in the loan agreement. Another difference is the payment of credit and loan liabilities. With loans, the most common are the commission and interest charged on the loan, and the loan may even be free, as exemplified by promotions on the first free cash loans.
The loan agreement must be obligatorily concluded in writing, while the loan does not have the required form of the contract, unless its value exceeds € 1,000 – then the contract should also be drawn up in writing.
A payday loan can be made when completing the minimum formalities at a bank or non-banking company, or even from a family member or a friend. Banks and credit unions have to carry out a tedious process of verifying the customer’s creditworthiness and creditworthiness while granting loans, which, unfortunately, can last up to several weeks and will require a potential borrower to submit multiple documents to the loan application.