Difference between Credit Policy and Loan
Table of Contents (9)
- Main differences between loan policy and credit policy
- Difference in the client in loan and credit policies
- Differences in operation between loan and credit line
- Difference in Interests and commissions
- Diversity of use
- Difference in the duration of credit policies and loans
- Policy renewal
- Comparative table of the difference between policies
- JLA Notaries, for policies in Barcelona
Policies are financial products of considerable variety, and to distinguish between their two best-known types, we want to explain the difference between a credit policy and a loan, as a notary specialised in policies in Barcelona.
Main differences between loan policy and credit policy
These two policies are governed by various legal regulations, including notarial legislation and the Consumer Credit Law 16/2011, of 24 June. In loan or credit policies, a financial institution always intervenes, which grants the policy, together with the applicant. But the difference between a credit policy and a loan lies in various aspects that we will learn step by step below.
Difference in the client in loan and credit policies
While the credit policy is usually requested from the bank by companies or self-employed professionals in the course of business, the loan policy is a banking product that, in addition to companies and self-employed individuals, is also offered to private individuals.
Differences in operation between loan and credit line
Regarding the operation or use of the credit policy, we highlight that the banking entity places the money in an account and the company or self-employed person has access to the money whenever they need it, being able to deposit and withdraw the money whenever convenient, up to the limit of the policy. The holder of a policy, therefore, can decide whether to use all the money or just a part of it.
On the other hand, in a loan policy, the banking entity grants an amount of money that must be fully deposited into the bank account of the person receiving the loan and must be repaid in full within a specified period. We can therefore state that the mode of operation is one of the main differences between a credit policy and a loan.
Difference in Interests and commissions
Sometimes the interest and fees on the credit policy tend to be lower than those of a loan policy, as normally the full amount of the credit granted is not used. A higher interest will be paid on the money used and a lower fee on the money available but not used. When the term set in the credit policy ends, the total amount of money must be repaid.
In the loan policy, there are monthly interests on the total amount granted and an amortisation table that establishes what must be repaid in instalments (both the loaned money and the interest payment). Therefore, the same interest rate will be paid on all the money received on time.
Diversity of use
The purpose of the policy or its destination also represents a difference between a credit policy and a loan. Thus, the credit policy is designed to cover occasional cash flow fluctuations in companies and is widely used in industrial or agricultural businesses where large quantities of goods are purchased during a financial year to be sold or distributed at a later time. It serves to provide liquidity, and we access the credit money only when it is needed.
On the other hand, the loan policy is ideal for financing specific operations such as purchases of goods or services, construction or renovations, debts, or economic needs. It is also suitable for exceptional investments, whether for maintenance, improvement, or development of new business structures.
Difference in the duration of credit policies and loans
The credit policy is valid for the period established in the contract and can later be renewed or cancelled. The validity period of the policy is usually short and it is most common for them to have a duration of one year. However, in practice, credit policies of up to three years are seen.
On the other hand, the loan policy has the duration and repayment period set in the policy and it is usually a longer repayment period than in the credit policy. It is common to see loans with durations between 3 and 15 years.
Policy renewal
The credit policy is renewable and the loan policy must be granted again if it is necessary for another operation.
Comparative table of the difference between policies
| Aspect | Credit Policy | Loan Policy |
|---|---|---|
| Typical client type | Mainly companies and self-employed | Companies, self-employed and also individuals |
| Operation | The bank makes a money limit available in an account and the client can use it when needed | The bank delivers all the money at the start and it must be repaid according to the agreed term |
| Use of money | All or only part of the available money can be used | The full amount is received from the beginning |
| Interest | Interest is paid on the money used | Interest is paid on all the money lent |
| Fees | There may be a fee for the money available but not used | Usually there is no availability fee |
| Purpose | To cover occasional liquidity or treasury needs in companies | To finance specific operations (purchases, investments, renovations, etc.) |
| Duration | Generally short (approx. 1 year, sometimes up to 3) | Longer (usually between 3 and 15 years) |
| Repayment | At the end of the term, the money used must be repaid | Repaid through periodic instalments according to an amortisation schedule |
| Renewal | Can be renewed at the end of the term | If more financing is needed, a new loan must be requested |
JLA Notaries, for policies in Barcelona
As Notaries in Barcelona, we can assist you in contracting credit policies in Barcelona and check which type of policy suits you best, as, on many occasions, it is a procedure considered doubtful due to the purpose of the operation. Furthermore, with our intervention, we ensure that you have been properly informed and advised and that you have understood the terms offered in the policy you will contract. Therefore, we make sure that the procedure is carried out legally.
Remember that we also process electronic notarial services such as commercial policies through digital deeds and notarial electronic signatures. As Online Notary, we aim to embrace new technologies and save you time in managing your procedures. You can find out how to do it here:
Contact us for your procedure in loan policies in Barcelona. You can do so via our email bcn@jlanotarios.com or the contact form on our website. We hope this article about the difference between a credit policy and a loan has been helpful to you.
