Usually, we consider that "loan" and "credit" are synonyms, but in reality they are two different products. Let's see what the difference really is.
A loan is a financial operation in which an entity (such as a bank) or person, gives another a fixed amount of money on the condition that said amount is returned, within agreed terms.
When we receive a loan, in addition to the amount they have loaned us, we must pay a price to use the money that is not ours, that is, interests (usually a percentage of the total that we have received).
A credit, on the other hand, is the amount of money with a maximum limit that an entity or person makes available to a customer.
To understand this, let's take a credit card as an example. It is common to have a cap for monthly expenses (say $5,000). Meaning that we can use any amount up to $5000, or even not use any money at all. Not every month we incur the same expenses.
In other words, when a client is granted a credit, that amount is not delivered at the beginning, but can be used up to the established limit, according to his needs.
The interest is usually higher than that on loans, but the customer only pays interest on the money he has drawn (in fact there is almost always a minimum commission, for example you have to pay your credit cards, whether you use them or not). By replacing what we owed, the same credit is authorized for the following month (or period).
We hope that our explanation has been educational and enlightening for you. Now you can show off your new financial knowledge with your friends.
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