For many people, the concept of loan and credit is used interchangeably. In practice, however, the two terms are different and it’s good to know the pros and cons of these financial products. In this article you will learn what solution will be a better choice in the current situation and the purpose for which the commitment is to be allocated. Let’s start by presenting the differences and describing individual forms of receiving funds.
Non-bank loan – advantages and disadvantages.
Loans can be granted by any person or institution, provided that the lender owns the money. The operation of granting a given amount is regulated by the Civil Code in the case of an amount exceeding USD 500. Financial support for smaller amounts need not be recorded as a written contract.
Non-bank loans may be granted to a person who is in debt and has a negative history in the registers. In addition, lenders can be private investors who provide financial support on very favorable terms – at a low interest rate. A disadvantage for the lender may be that they provide financial support on their own responsibility and from their own capital. On the other hand, the borrower has the option of receiving funds, even in situations where banks issue a negative decision.
verification and other registers is not required
- the purpose for which the loan is to be granted does not have to be determined
- the loan can be granted at any interest rate
- the capital transferred to the borrower becomes his property
- the repayment date does not have to be specified in the contract
Bank loan – pros and cons.
Loans are granted by banking institutions and SOKI. It is an obligation to make available a given amount of money for a given purpose and to set a deadline by which the borrower must repay the loan. In this form, the person taking out the financial support must allocate it to the purpose which was specified in the written contract. The disadvantage of the loan is the fact that a positive assessment of creditworthiness does not mean that the borrower will receive the amount of money I need. In such a situation, banks may propose a smaller amount. Obligations in this form involve arranging a pile of formalities.
creditworthiness verification is required, which has many factors
signing up requires a purpose to be allocated
capital is put into temporary disposal and is not the property of the borrower
a written contract with repayment deadline is required
Credit or loan – what will be better?
The answer to this question is individual and depends on many factors. For people who need a large amount (eg for building a house), the loan will probably be more favorable due to the fact that firstly – it will be difficult to find a private person with such capital and secondly – the interest rate over a very long period (eg 30 years) may be lower. Of course, it is worth getting acquainted with the offers of various institutions to make an analysis or use the services of a financial advisor.
On the other hand, loans have many advantages in the case of slightly smaller amounts (eg up to USD 100,000). If you find a trusted investor who prefers to spend your money on an investment, which is a loan, the final price of the liability can come out much better. Many people keep their savings on bank deposits at a very low interest rate (say, for example, 3%) – such a person prefers to invest their savings in a loan for a person who is willing to pay twice as much. The interest rate (eg 6%) is beneficial for both the lender and the borrower, because it is practically impossible to get a loan with such a low interest rate.