Understand the differences between loan and financing!

Did you know that lending and financing are different things? Yes, although many people treat the terms as synonyms, they are different types of credit, each with its peculiarities and more suitable for certain occasions.

To choose the right option for your needs, you need to know the characteristics of each one. In this article, we will help you to clarify your doubts and understand, once and for all, the differences between loan and financing. Follow!

 

The differences between loan and financing

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The essential difference between the two modalities is the purpose of the credit. There are quite different characteristics, too, in relation to the rates applied and the bureaucracy involved.

Loan

The most notable feature of the loan, compared to financing, is freedom. You do not need to justify to the financial institution the destination you will give to the borrowed money, just make the payments within the defined period.

The release of a loan is simpler and faster. You will be subjected to the bank’s credit analysis which, according to the assessment, will provide the credit, without the requirement of guarantees.

On the other hand, and just because of such ease, interest on the loan is higher. The most important factor in determining the interest rate of a credit transaction is its degree of risk to the financial institution. In the case of the loan, if there is a default, the bank will have to bear the loss.

 

Financing

Most used for operations involving higher amounts, financing has stricter rules. Its specific purpose must be indicated already in the contract signature, being relevant even to define the line to be contracted.

Lower interest and longer terms are other characteristics that distinguish a loan from a loan. As the good or product financed will serve as a guarantee for the bank, which will be able to take it in case of default, the operation is safer and, consequently, the conditions become more favorable.

Even for the amounts involved, hiring a loan is more bureaucratic. In addition to the borrower’s credit analysis, which will be more rigorous, the asset to be acquired will also be appraised, and must meet certain requirements.Real estate financing is a good example to understand this dynamic: before the contract is signed, the property is submitted to inspection.

 

The release of credit and the situations indicated for each modality

credit loans

Another significant difference between the loan and the financing is in the release of the credit. In the first case, the money is delivered to you, who will have the power to decide where and how to use it. In financing, resources go directly to the seller of the financed product or product.

Although not exactly a rule, we can say that the loan is more suitable for immediate situations, such as to pay off a debt. Financing, because it offers better conditions, is a better option for those who want to purchase specific and higher-value goods, such as real estate and vehicles.

Now that you know the differences between loan and financing, you can choose the most suitable credit operation for your needs with more ownership. Do not forget that financial planning is always important for the success of your business. 

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