Difference between online loans and lines of credit

When is it convenient to borrow online ? From the point of view of financial actions, there are concepts that are different and that, however, are confused in the collective imagination in a very usual way. This is the case, for example, of the terms online loans and credits.

How to differentiate between online loans and loans

A loan is an operation in which there is a commercial relationship between two necessary factors: the lender is the one who grants a certain amount of money; while the borrower is the person who receives that loan and who agrees to return the money received, plus the sum of interest, in a specific period of time that is set in the contract that has been previously signed. Generally, the borrower returns the amount in regular installments.

Credit and loan are two different concepts, but they also have common similarities that should be considered. Both are financial operations that allow a person to obtain a specific amount of money, through these actions with which they can obtain liquidity immediately.

There are many moments in life in which the person seeks funding to carry out a particular project, for example, buying a car, starting a business, buying a house and any personal project for which you need to have a fund. of savings that, perhaps, the protagonist lacks. And in this way, the loan puts at the disposal of that person the necessary and timely means to carry out any of these goals in the foreseen term.

For this reason, thanks to these financing plans, the person can carry out their own projects. However, the important thing is that each protagonist look for that plan that best fits their needs of that present moment and their circumstances, because each case is unique and unrepeatable.

When a client accepts a loan , he can have a specific amount of money available for a specific period of time. One of the differences between the loan and the loan is that, in the first case, the client pays only the interest corresponding to the money he has used in practice.

However, it is also important to point out that the interests are higher in that case. On the contrary, when a client requests a loan, he has to respond to the payment of interest applied to the entire amount he has received from the lender at the beginning of the operation.

Another common difference between a loan and a credit refers to the amount of money the client receives. Generally, a loan refers to a high amount of money, as shown, for example, by the mortgage loan . The customer agrees to return the amount he has received. And what happens if the client does not pay that amount of money? In that case, the property itself becomes a guarantee of payment for the entity that can recover the money invested through the sale of that house or apartment, for example.

On the contrary, a line of credit that can materialize through a credit card, is a convenient and practical format for the customer who has to pay the interest for the maintenance of the card and also, to be able to access the money received in function of your needs.

For this reason, the credit and the loan also differ in the purpose of each one. For while many people ask for loans to undertake projects for which it is necessary to have a large amount, on the contrary, credit is a tailored solution on those occasions when unexpected expenses arise that can alter the monthly budget of the company. family.

For this reason, a loan is a help tool that, from the point of view of financial coaching, also reduces the economic stress that the person can suffer when his income does not reach the expenses he has to face during that month. It is also more frequent to request credits at specific times of the year, for example, in September, January or holidays, when extra expenses skyrocket.

For this reason, attending to what it means to request a loan , the paperwork and the documentation that must be submitted for its application and possible acceptance is more complex than the application for a loan. In addition, from the economic point of view, the request for a loan responds to a personal decision when planning a project of its own, for example, the purchase of a car.

On the contrary, the request for a loan usually responds more to a reactive attitude, since it is a solution that the person adopts to face the payment of an unexpected expense , an expense that has arisen against his own will. For example, a household appliance that has broken down at home and must be repaired. It should be pointed out that both are equally valuable products. The choice of a loan or a credit depends, mainly, on the purpose. In both cases, these financial plans have a value of medium in relation to the purpose to which they are directed.

Therefore, it is convenient to analyze the context of the personal situation to make a decision or another. A loan provides the user with the advantage of receiving a greater amount of money , however, also commits to respond for longer to pay the monthly installments to settle the debt.

How to obtain liquidity quickly

Therefore, the person commits to have money to face those fees for a long period of time. On the contrary, when a client receives a loan, he can pay off the debt in less time, simply because the money borrowed was also less.