Loans and Credit

The Loan What is a loan?
A loan is an operation by which a financial institution puts at our disposal a certain amount of money through a contract. In a loan we acquire the obligation to return that money within a set period of time and pay agreed fees and interest. We can return the money in one or several payments, although, usually, the amount is returned in monthly installments that include commissions and interest.

When talking about a loan, the amount of money we borrow is called the ‘principal’, while the ‘interest’ is the price we pay for having that money. The period of time to repay the loan is known as the ‘term’.

The ‘lender’ is the person or financial entity that lends the money or the good as a loan. The ‘borrower’ is the person who receives the money or the good as a loan.

According to Article 1740 of the Civil Code, “By the loan agreement, one of the parties gives the other, or something not fungible to use it for a certain time and return it, in which case it is called a loan, or money or other fungible thing, with the condition of returning another of the same kind and quality, in which case it simply keeps the loan name. The loan is essentially free. The simple loan can be free or with pact to pay interest. ”

What is a credit? Credit 
The credit is a financial operation in which a quantity of money is made available to us up to a specified limit and during a certain period of time.

In a credit we administer that money ourselves through the disposition or withdrawal of the money and the income or return of it, attending to our needs at all times. In this way we can cancel part or all of the debt when we deem convenient, with the consequent deduction in the payment of interest.

In addition, for allowing us to have that money we must pay the financial institution some commissions, as well as some interests according to agreed conditions. In a loan only interest is paid on the capital used, the rest of the money is at our disposal but without that we have to pay interest. At the expiration of the term of the loan, we can renegotiate its renewal or extension.

The purpose of the loan is to cover expenses, current or extraordinary, at specific moments of lack of liquidity. The credit normally involves the opening of a current account. There are two types of credit: credit accounts and credit cards.

It is quite common to use the terms “credit” and “loan” as if they were the same, but the truth is that there are many differences between credit and loan.

Difference between credit and loan
Unless we have a certain financial culture, probably each and every one of us has confused the terms ‘credit’ and ‘loan’. Surely we will have used them without distinction to refer to each other, and we will have said that “I have to ask for a loan” or “I am going to ask for a loan” believing that they meant the same thing. The truth is that they are very different, and it is convenient to be clear about a few concepts about credits and loans:

In the loan, the financial institution makes a fixed amount available to the client and the client acquires the obligation to return that amount plus agreed commissions and interests within the agreed term.
In credit, the financial institution places at the customer’s disposal, in a credit account, the money it needs up to a maximum amount of money.
The loan is usually a medium or long-term operation and amortization is usually made through regular, monthly, quarterly or semi-annual installments. In this way, the client has the opportunity to better organize himself when it comes to planning payments and personal finances.
Generally the loans are personal and are granted to private individuals for private use, therefore, usually require personal guarantees (guarantees) or collateral (pledges or mortgages).
In the loan the amount granted is normally entered into the client’s account and the client must pay interest from the first day, calculating the interest on the amount that has been granted.

Types of loans
Although we generally differentiate only between personal loans and mortgage loans, the following types of loans are also often distinguished:

Consumer loans
These types of loans are usually used to finance durable consumer goods such as: a car, a motorcycle, furniture, appliances, etc. and a not very high amount.

Personal loans
This type of loan is usually used to finance specific needs at a certain time and for a small amount. It is very similar to the consumer loan although in this case they are used to pay for travel, a wedding, etc … that is, intangible or perishable goods.

Study loans
These types of loans are much more used in countries such as the United States, the United Kingdom and other European states. In Spain they are being increasingly used, among other factors, because financial institutions improve and expand their offers year after year. These are loans aimed at students to finance university enrollments, postgraduate studies or study stays abroad. The costs are usually a little cheaper than personal loans.

Mortgage loans
The mortgage loan is characterized because, apart from the personal guarantee, a “real guarantee” is offered as a guarantee of payment, which consists of the mortgage of a real estate. In case of not returning the loan, the financial entity would become the owner of the home.

What elements form a loan?
Before differentiating the types of loans that exist, it is important to know the elements that form them to avoid misunderstandings and confusions when requesting them.

Capital: amount of money requested from the bank.
Interest: price that the client pays to the entity for disposing of the loaned capital.
Term: period of time stipulated in the contract to return the principal plus interest.
Traveling, making a reform or expanding your studies is easier with BBVA’s online loans: more information

Types of loans
Although there are different types of loans, in reality all can be included within two large categories known as personal loans and mortgage loans.

Personal loans are those designed to finance the specific needs of the client at a given time. As a general rule, the principal or economic amount requested in this type of loan is small. Within the personal loans are, for example, the so-called consumer loans and student loans. The consumption ones are used to finance durable consumer goods such as a car, for example. While the studies, as the name suggests, are designed to cover the costs of the enrollment of degrees, postgraduate and even university trips such as Erasmus.

In the loan simulator of the BBVA website, you can see the types of personal loans offered by the bank and check their conditions based on the amount of money you want to request. BBVA offers up to ten different types of this group of loans: a clear example of how varied they can be.

Mortgage loans, on the other hand, are those used to finance the purchase of a home and, sometimes, the start-up of a business. In addition to involving amounts of money higher than those of personal loans, mortgage loans have a real guarantee for the bank. That is, if the client does not return the loan money, the bank can have the mortgaged property sold to recover the debt, and can also become the owner of the financed home.

In addition to the two types mentioned, the loans also differ according to whether they have an endorsement or not. Having a guarantee at the time of requesting a loan is a way of guaranteeing the fulfillment of the acquired economic obligations. The guarantor is willing to meet the guarantor’s commitments, that is, to pay the loaned capital plus the interest in case the borrower can not. Now, to be a guarantor you have to fulfill a series of characteristics, among others:

Be of legal age: this requirement may not be met in some very specific and exceptional cases.
Have solvency: the guarantor must have a higher income than the obligations acquired with the bank by the loan applicant.
Stable income: in addition to solvent, the person who guarantees must have their income guaranteed as far as possible.
To have properties free of charge: this requirement is especially important if it is about mortgage loans, since the guarantor could cover the loan conditions with his own home.
Having an endorsement is always a sign of confidence that greatly increases the likelihood that the bank will approve the requested loan of whatever kind. It should also be remembered that if the owner does not pay the loan, the guarantor must pay the debt with his present and future assets.

In BBVA you can consult all the information related to your loan offers and test your simulator.

A bank loan is the operation through which the financial institution makes available to the customer a certain amount of money, stipulated previously, through a contract with which said customer acquires the obligation to return the money within a limited time. Usually, the amount of money lent by the bank is added interest that must also be returned, and that will vary depending on the type of loan requested.

A bank loan, therefore, is a commitment that should not be taken lightly and that in order to obtain the best profitability requires prior knowledge of its characteristics. Knowing what types of loans exist is fundamental to be able to request from our financial institution the one that best suits our needs.