November 20, 2019 Ethel Durham 0Comment

Taking a loan can help you avoid problems and fulfill your dreams and goals, e.g. buying a car, going on vacation or replacing home appliances. It often happens that both forms of borrowing are used interchangeably as equal. This is obviously not the case, because both their legal form and the institution that can provide them differ. Costs will also be different.

What is a loan and what is a loan?

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The loan is cash in a certain amount, which is placed at the borrower’s disposal for a certain period of time (indicated in the contract), provided that the money is given back within the set time limit, and the borrower has adequate creditworthiness considered in terms of real possibility of paying the installment. Loans may be granted only by institutions authorized to do so in the Banking Act – bank or credit unions. This form of borrowing is a deliberate form, so the borrower must have a specific purpose for what to spend money on the loan, and the appropriate entry should be in the contract.

A loan, however, is any lending of money, irrespective of the entities between which it occurs. It can be any person or institution that has its own funds and grants a loan from these funds – for a change, the bank borrows from the money deposited by its clients. The loan also has its undoubted advantages. The borrower is not obliged to state for what purpose he needs money, and on the other hand – the lender has no right to control what they were intended for. Also the costs can be set arbitrarily (under applicable law), it can even be a free loan, such as a free payday loan.

Credit and loan costs – comparison

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There is a common understanding that credit costs are lower than loans and that is the right way to think. This is due to the fact that the degree of default risk varies for these institutions. Loan companies insure themselves less against the risk of losing funds, so higher costs provide adequate compensation. Below is a real comparison of the cost of credit at major banks and loan companies (USD 5,000, repayment period of 12 months)

The loan does not guarantee security

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Having the right knowledge of both loans is the key to borrowing so that you can avoid the consequences of defaulting on your obligations. In addition to understanding the diverse range of companies, you will also need ongoing analysis of your financial situation. Each of these forms of borrowing has its pros and cons, and in the case of loan companies these are obviously more convenience, accessibility and greater freedom when it comes to the use of this money – so it’s worth following current trends.