Credit and loan – what are the differences between them?


In everyday language, often interchangeably used the terms of the loan and the loan. However, in practice, loan and loan agreements are not straightforward – they differ in terms of rules, legal basis, and also by which entities they can be granted. What is the difference between a loan and a loan ? We explain

Loan agreement

Loan agreement

The loan agreement is regulated by the provisions of the Civil Code. In accordance with art. 720 par 1 of this Act, by concluding this type of contract, ” the loan provider undertakes to transfer the ownership of the recipient a certain amount of money or items marked only as to the species, and the recipient undertakes to return the same amount of money or the same amount of items of the same grade and quality ” . The provisions do not impose the form of the contract on the parties – it may even be oral – provided that it concerns a value lower than USD 1,000.

As indicated in the above provision, the subject of the loan agreement may be money or things, but in the case of the latter the condition is their specification as to the species. This means that this type of contract may relate to items specified by features relating to a larger group of products – so you can include, without doubt, among others gasoline, grain or coal. However, the subject of the loan agreement cannot be an item marked as to its identity – that is, certain specific features that are relevant only to it. An example is, for example, a car with a specific registration number (but no longer any car that falls within a given brand).

Loans can be granted by both natural and legal persons (including banks). It does not matter whether a natural person enters into a contract as a private individual or as part of a company that he runs. Importantly, the borrower does not have to specify the purpose for which he takes out the loan , while the lender cannot control what the funds he has put into use are intended for. The record of the purpose may or may not be included in the contract.

It depends on the parties to the contract whether the loan will be paid for or free. This usually depends on the relationship between the parties (e.g. family, friends), but is not regulated by any regulations.

The basis for securing the loan agreement may be a surety, promissory note, voluntary submission to enforcement, pledge or registered pledge.

Letter of credit is most often used

Letter of credit is most often used

In the case of a loan agreement, the relevant law is the Banking Law. Pursuant to it, a loan agreement is a situation where the bank undertakes to make available to the borrower for a specified period of time in the contract a specific amount of cash for a specific purpose. The borrower, however, undertakes to use it under the conditions specified in the contract, return the amount of the loan used, together with interest on the specified repayment dates and pay commission on the loan granted.

The loan agreement must be concluded in writing – it is not valid in any other case. So, unlike a loan , any verbal arrangements do not matter.

The subject of the loan agreement can only be a specific sum of money, as specified in the document in writing. In addition, only a bank can grant a loan .

The loan agreement is always payable. For the transfer of funds to the borrower, the bank demands remuneration, usually in the form of interest, paid back together with installments of the capital itself. Importantly, the loan is a purposeful agreement – i.e. funds received from the bank must serve a specific purpose, also specified in writing in the documentation. The bank can control what the money is actually spent on.

The loan agreement is secured – in practice a mortgage, bank guarantee or letter of credit is most often used, bills of exchange are less common.

Credit and loan – summary

Credit and loan - summary

So, as you can see, the loan agreement and loan agreement are two completely different concepts. The former is less formalized and more often used in more private relations. The other, regulated very strictly by regulations, can be used in certain cases – e.g. mortgage or revolving loan.

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