Every day we use the terms “loan” ( cash loan ) and “loan” (cash loan) interchangeably. We take out a loan for an apartment or a car at the bank. However, is credit and loan one and the same? It turns out not. Contrary to appearances, there are several quite significant differences between these products.
Credit and loan – the purpose of money
The loan is granted for any purpose . In our contract with a bank, cooperative savings and credit union, loan company or private person, we do not declare what we will use the cash for. There are also no provisions that would allow financial institutions to control how money is spent.
The loan is granted for a specific purpose . That is why there is a division into several categories of these products, e.g. mortgage loans, car loans or consolidation loans. Banks often not only specify the purpose of the loan in the agreement, but also organize the entire transaction.
Money for an apartment goes straight to the developer or seller, cash for the car goes to the salon or commission, the amount of the consolidation loan will be credited to the bank accounts where you had previously borrowed.
The matter is complicated by cash loans, revolving loans and credit cards. They are all loans in the sense that we do not have to declare what we will spend the money on. Despite this, the word credit is used in each of them.
Credit and loan – parties and subject of the contract
Credit is the domain of two types of institutions: banks and cooperative savings and credit unions. They are under the supervision of the Polish Financial Supervision Authority (SWD). In Poland, SWD approval is required for every institution that wants to grant loans.
The loan agreement, in turn, can be concluded by any two parties, not only the bank or LOKD and its client. They can be two private persons, they can also be companies not supervised by the PFSA.
All non-bank loans, including payday loans are, in essence, loans and not loans. They have no specific purpose and are not subject to either the banking law or the PFSA supervision. Social loan services, i.e. platforms that associate a private lender with a private borrower, work similarly.
Do you know that…
Loan agreements up to PLN 500 can be concluded orally. What’s more, the loan agreement does not have to be about money – we can also borrow material things or securities. On the other hand, the loans only apply to monetary transactions. And all, regardless of the amount, require a contract (it can be in electronic form).
Credit and loan – legal regulations
The financial agreements are regulated by the Civil Code, which contains, among others, a provision stating that the maximum interest may not exceed four times the lombard rate set by the National Bank of Poland per year.
For loans (especially non-bank), the Civil Code is the most important legal act. Another is the Consumer Credit Act 2011, in which we can find, for example, provisions regarding fees and commissions, the possibility of withdrawing from the contract and the need to inform the customer about the most important product parameters, including the actual annual interest rate (APRC).
With loans, in addition to the Civil Code and the Consumer Credit Act, there are also provisions of the Banking Act and other legal acts directly related to a specific type of loan (e.g. the Act on Land and Mortgage Registers and Mortgage).
Loan and credit – do the differences matter to the client?
A loan is a more flexible and available form of financing – you can use it for any purpose, and it can be provided not only by banks, but also by other companies or private individuals. On the other hand, you can get a loan faster and easier, which is worth considering when signing the contract.
Loans are the domain of banks and credit unions. They are much stronger regulated and supervised by the state, which increases the security of concluding such agreements. On the other hand, they are less flexible (the need to specify a goal) and more difficult to access (more thorough analysis of creditworthiness).