What is the difference between a loan and a loan, both in theoretical and practical terms? In what situations should you be particularly careful when dealing, for example, with advertising materials of loan companies?
Although theoretically such concepts as credit and loan do not seem particularly problematic, practice shows that in many cases we have problems distinguishing these concepts. On the one hand, we use these terms in an exchangeable way in everyday life in an informal way, for example about a bank loan.
The marketing policy pursued by today’s banks
And especially loan institutions are certainly contributing to conceptual chaos in this respect. At virtually every step, we can come across such ads from banks offering a “cheap loan” or ads from loan institutions offering their clients “debt relief”.
No wonder that the statistical consumer often has problems separating these two spheres. And it is worth realizing that this demarcation is extremely important because the differences between a loan and a loan are not only formal. Most often, these products will also differ significantly in terms of their costs, duration or even mechanism of action. An important factor may also be the risk, which in some cases we take when deciding to cooperate with lenders outside Good Finance.
So what is the difference between a loan and a loan, both in theoretical and practical terms? In what situations should you be particularly careful when dealing, for example, with advertising materials of loan companies? Let’s take a closer look at this issue and try to answer the above questions.
Chalks and loan: formal difference
According to the simplest encyclopedic definition, credit is: “an agreement between the bank and the client, under which the bank provides the client with repayable financing for a specified period.”
Of course, the above definition will be problematic from the perspective of e.g. some forms of investment loans, including in particular loans financed from EU funds, which are sometimes non-returnable or only partially refundable.
However, with regard to loans dedicated to individuals, the definition in the shape presented above seems sufficient. It is worth adding, however, that in accordance with the currently applicable Good Finance Law, loans can be granted not only by banks.
As a rule, loans to individuals can be divided into:
Consolidation loans (which should in no case be confused with so-called debt loans, as will be discussed later)
It should be noted that for the first three points the basic legal act with defining significance is the Consumer Credit Act. Pursuant to this Act, consumer credit is a credit/loan for consumer purposes with an amount not exceeding the ceiling of USD 255 550, with the exception of loans for renovation of a house/apartment not secured by a mortgage.
We can already see at this point that Polish law introduces some conceptual confusion because theoretically, a loan taken from a loan institution is also a consumer loan. We will talk about these difficulties in a separate paragraph.
On the other hand, mortgage loans are regulated by other legal acts than in the case of consumer loans. The differences are primarily that the mortgage by definition must be intended for a specific purpose, namely the purchase of a house or apartment.
This kind of restriction, however, does not occur, e.g. in the case of consumer loans or credit cards, because the bank will not in any way enter into what we want to use the funds borrowed. The situation is slightly different when it comes to consolidation loans, because, despite their “consumer” nature, they also have a precisely defined purpose, which is the consolidation of existing credit/loan obligations.
Practical differences between a loan and a loan outside Good Finance
However, what are the most important differences from the point of view of consumer credit in a bank and a loan from a loan institution? The following factors can be mentioned here:
Security (the Good Finance sector is much more strictly controlled than the loan sector)
Cost (as a rule, a bank loan will be much cheaper than a loan outside of Good Finance)
The process of verifying creditworthiness (in banks, it is in principle much more stringent than in the case of loan institutions)
However, the above information should not be absolutized. There are also proven and safe loan institutions on the market. What’s more, in some cases a loan outside Good Finance may be cheaper than a bank loan (main thanks to promotions titled APRC 0%).
On the other hand, when it comes to the rigor of the creditworthiness verification process, one should also talk about a general tendency rather than an iron rule: there are also loan institutions on the market that check the creditworthiness and credit history of a potential customer very carefully.
Loan: what is it?
Providing a complete and universal definition of the term loan is certainly not an easy task. It can be said that a loan is a product operating on similar principles to a loan, but not formally a loan. From a practical point of view, the following entities can grant loans:
The so-called. loan loans
Points 2 and 3 require a separate discussion. Pursuant to the provisions of the Consumer Credit Act, each lending company has the legal obligation to enter into the Register of Loan Institutions operating at the Polish Financial Supervision Authority. However, despite this, there are still entities on the market that grant loans on the one hand and do not have the status of loan institutions on the other.
These types of companies are of course highly risky for clients because their business is based on skillful circumvention of Polish law. So, if we are looking for loan financing outside the Good Finance sector, we should be primarily interested in the offer of entities appearing in the aforementioned Register of Loan Institutions. This does not mean, however, that every loan institution is a safe lender.