This is the difference between credit or loan
One of the recurring errors in the financial field by consumers is to equate the concepts of credit and loan, when in fact they are very different.
The most important common point is that there is a financial institution that makes available a quantity of money for a client; however, the mechanics are totally different.
What is a credit?
When they grant us a loan, they open a line of capital for us to use when we need it. However, we are not obliged to make use of it. In addition, it is perfectly possible to have that possibility, but not to withdraw 100% of the money to which we would be entitled, using only the punctual amount we need.
Its duration and quantity is stipulated by agreement between both parties, although it can be extended and renewed.
What is a loan?
On the other hand, in loans the concession of the capital is complete and, from the first moment, the financial institution or the private lenders provide us in our account all the money that they have granted us. It is an ideal option for large disbursements.
Your refund is made by means of quotas during the time and as often as agreed. The banks, to carry out their inquiries, usually request the reason for which the loan is being requested and make a much more exhaustive study of the risks.
Which is more convenient?
It depends on our particularities. When choosing between credit or loan , we must take into account for what it is going to be used, the amount that is desired, the time of return …
Typically, credits contribute to a particular or company can cope with costs sustained over time, cyclical or more or less predictable.
Loans, on the other hand, are better designed to cover specific needs in the absence of liquidity, especially in the case of large amounts of money.
Private capital loans
Private lenders seek to obtain a return on their capital. Therefore, they can put it in the hands of professionals who offer the possibility of a certain amount of money to be repaid in a variable period of time.
With the crisis of 2008, commercial banks have tightened the requirements to access one of their loans: that is why they do not grant them in all cases and their risk study is very demanding.
Private loans follow another type of regulation, just as safe, but more flexible. In addition, private equity entities can grant loans independently of being indebted, or of difficult economic situations.
When to resort to a private loan
Therefore, there are several cases in which we can agree to resort to a private loan . The main reasons are the urgency of liquidity, being on a list of defaulters or that the bank does not grant us the financing.
Need for liquidity
This happens because it is relatively common that a traditional financial institution does not lend us the amount we need in the short term and, if it lends it, the procedures usually take a while.
Private equity lenders offer alternative financing that can respond to these problems and situations more quickly and flexibly.
It is possible that we need financing of these characteristics because we have to face an unexpected big expense and the opportunity cost of not doing it is frankly high. Therefore, it is good that we have this possibility to reduce this risk to the minimum expression; If we have the ability to pay and a mortgage guarantee, there will be no problem.
The bank does not give us the money
It is possible that the financial institution does not give us the money that we request. Unfortunately, it is not enough to be able to pay a loan to be granted and, in fact, it is usual for operations that would be viable to be denied.
This is a logical option for us to look for financing alternatives.
The Risk Information Center of the Bank of Spain collects all the loan operations of our country: this can make an entity verify how much funding we have requested and reject us as risky.
Private capital loans, on the other hand, do not take this condition into account nor, in turn, do they appear in CIRBE. This means that, even if they grant us a private loan, they would not appear in this plant and, therefore, would not add up to the rest of the financial entities.
What is the mortgage guarantee?
Private equity loans work with a mortgage guarantee. This means that, even if we are in a difficult economic situation, we can request a loan of this type if we have a property in our name.
The property, as well, acts as a guarantee of payment for the operation and will be sufficient to allow us to obtain the financing we need.
These products, therefore, are designed to cover the needs of all types of workers, such as temporary workers, pensioners, freelancers or employees … in any situation, since only one property is necessary to access them.
Know the market options to choose well
The financial market offers several options to individuals and companies and knowing them is very important to be able to make rational decisions that are useful for our interests.
In addition, we must take into account alternative financing possibilities that break with the monopoly of traditional financial institutions.
In this way, it is important to know that there are private loans beyond the circuits of traditional financial institutions, because this way we can make conscious decisions when we need liquidity.
And, of course, it is always convenient to have some financial education. For this reason, knowing the difference between credit and loan is fundamental for us to understand what is the functioning of the market and what option we can choose when we are in an adverse economic situation.