Credit and loan – what is the difference between a loan and a loan?

Every day we use the terms “loan” ( cash loan ) and “loan” (cash loan) interchangeably. We take out a loan for a flat or a car at the bank, although it is usually a bank loan – mortgage or housing loan and car loan, respectively. Are credit and loan one and the same? It turns out not. Contrary to appearances, there are several quite significant differences between these products.

What is the difference between a loan and a loan?

What is the difference between a loan and a loan?

At first glance, the terms loan and credit mean the same thing. However, they cannot be used interchangeably because they have a different legal basis and subtle differences in meaning.

For example, a cash loan is granted under the Banking Law only by banking institutions, and the legal basis for granting loans is the Civil Code, which is why any natural person, entrepreneur or even a bank can grant loans to customers. However, this is not the only difference between a loan and a loan – the others can be found in the table below.

Credit and loan – legal regulations

Credit and loan - legal regulations

The loan agreement is a financial agreement regulated by the provisions of the Civil Code. The code also regulates the amount of maximum interest.

In art. 359 it was established that if the amount of interest is not otherwise specified, statutory interest is equal to the sum of the reference rate of the National Bank of Poland and 3.5 percentage point, and the maximum amount of interest resulting from legal action, including from the granted loan may not exceed twice the statutory interest rate per annum. Currently, when the Good Finance reference rate is 1.5 percent, the maximum interest is 10 percent. per year.

For loans, especially those granted by non-bank companies, the Civil Code is the most important legal act. However, loan companies must also comply with the provisions of the Act of May 12, 2011, on consumer credit, which includes provisions regarding fees and commissions, the possibility of withdrawing from the contract and the need to inform the customer about the most important product parameters, including the actual annual interest rate (APRC) ).

In addition to the Civil Code and the Consumer Credit Act, there are also provisions of the Banking Law Act and other legal acts directly related to a specific type of loan (e.g. the Act on Land and Mortgage Registers and Mortgage for Mortgage Loans).

Credit and loan – parties and subject of the contract

Credit and loan - parties and subject of the contract

Credit is the domain of two types of institutions: banks and cooperative savings and credit unions, i.e. banking institutions in total. They are under the supervision of the Polish Financial Supervision Authority (KNF). In Poland, KNF approval is required for every institution that wants to grant loans.

The loan agreement, in turn, can be concluded by any two parties, not only the bank and its client. They can be two private persons, they can also be companies not supervised by the PFSA, such as non-bank loan companies.

All non-bank loans, including payday loans, are, in essence, loans rather than loans, although they are often referred to in this way. They have no specific purpose and are not subject to either the banking law or PFSA supervision.

Social loan services, i.e. platforms that associate a private lender with a private borrower, work similarly.

The subject of the loan agreement can only be money, as opposed to the loan agreement, where it can also be things specific to the genre.

Credit and loan costs

Each time the loan agreement is a paid agreement, which means that the customer always has to pay the bank for granting the loan. A commission is usually paid for joining the loan (for its granting), credit interest and fees related to repayment of the loan or establishing its repayment security.

The loan agreement may or may not be payable, as the best example is free cash loans. The parties may agree that the loan will be made available free of charge.

Purpose of the loan and loan agreement

Purpose of the loan and loan agreement

In the vast majority of cases, with bank loans, customers must specify in the loan application and in the loan agreement the purpose for which they want to receive money from the loan. The bank has the right to know and control the distribution of the loan amount by the client.

If it turns out that the money was spent not in line with the purpose set out in the loan agreement, the bank may require the customer to repay the entire amount of the liability.

The same situation is completely different in the case of loans. Borrowed money formally becomes the property of the borrower, so he can spend it for any purpose.

Duration of the loan and loan procedure

While a cash loan can be obtained from a non-bank company even within 15 minutes of submitting the application, the credit process at the bank when granting the loan may take several days. With high-value mortgages, the duration of the loan procedure is extended to several weeks.

Extending the time to make loans available is due to the fact that banks must carefully examine the customer’s creditworthiness and creditworthiness, collect employment, earnings and income certificates, and then verify them. They are also required to control the client’s credit history at the Credit Information Bureau, and unfortunately, it all continues.

In the case of loans, the procedure for making funds available is maximally simplified and therefore shorter. The most time can take the verification of the customer’s identity by means of e.g. a transfer for a symbolic amount: USD 1 or USD 0.01. However, there are companies that will grant loans without transferring a penny.

Real estate loan: borrowing at 1%, the new standard?

The return of September is also the return of the real estate market. Credit brokers say banks are being offensive with further rate cuts to lure borrowers. So that credit at 1% is no longer a good deal but a standard in the making, even over the longest durations.

From 1.43% in February 2019, on average and all durations combined, to 1.17% in August 2019: the Credit Housing-CSA observatory confirms the exceptional level of real estate rates. The records are broken every month, but rates have also been clearly falling in recent weeks. Even if it delivers data with a certain delay, the Banque de France confirms this new drop-out: an average fixed rate of 1.35%, all durations combined in July, against 1, 51% in March.

More concretely, in this back-to-school period, the banks are once again posting declining borrowing rates, in order to seduce borrowers. To summarize the purpose of brokerage networks having published a barometer in early September, banks offer on average and without negotiation rates around 1.10% over 10 years of 1.30% over 20 years and 1.50% over 25 years.

Average rates charged in banks in September

Average rates charged in banks in September

Average rates, or market rates, based on the scales provided by the banks. These are only the rates observed, and not the rates negotiated by these brokerage networks.

Like every month, the averages announced vary from one broker to another. But all note a decrease of 0.05 to 0.10 point, approximately, for the average scales in September.

Beyond the three networks mentioned above, Fine Bank announces banks on the offensive in September (1.05% over 15 years, 1.25% over 20 years and 1 , 50% over 25 years on average), and the Central Finance Office reports a steeper decline in loan terms of 20 years, to 1.14% on average, against 1.42% on 25 years.

One observation: if the banks agree to lend over 25 years, or even more, this loan duration intended for more modest households and new owners remains the least attractive. , with a slightly higher rate.

A shy renegotiation window

A shy renegotiation window

With rates falling ever lower, brokers logically record increased activity on credit redemptions and renegotiations. Some borrowers are now buying recent loans, from 2016 or even 2017, which were considered to be loans obtained at record rates at the time. around 2%, says Sandrine Allonier, spokesperson for Good Finance, a network where requests for renegotiations increased by 40% in summer 2019 compared to 2018. Today these credits can be renegotiated to less than 1%! The biggest winners are those who renegotiate over short periods of time, at rates sometimes below 0.5% over 7 or 10 years

Alban Lacondemine, founding president of Loan-Direct, confirms that the significant rate reductions for the best files, in this return, allow to restore the appeal to the operations of repurchases of credit or renegotiations.

According to Banque de France statistics, the share of redemptions and renegotiations in the flow of credit files went up again in July: they represent almost 20% of files, compared to 17 % approximately in previous months.

Flat calm, new record or negative rates on the horizon?

bank

And then? Will rates go lower and lower, even if they are already approaching the floor? “ September 12, 2019 will be a pivotal date, ” insists Sylvain Lefevre, president of the Central Financing Office. The Capital Lender should indeed announce its measures to support the economy, which should prove to be very accommodating and move in the direction of the further decline in rates. Up to negative rates? The rates, now lower than inflation, already allow for enrichment through credit.

More extreme models, such as those applied in particular by Japan and by Germany have not so far proven themselves, and our French banking system is not not ready for such a shock.

Philippe Taboret, Deputy General Manager of Agree bank, also points to the crucial day of September 12 in his rate meteo, and is very optimistic for borrowers: In view of the political announcements and the market trend, by the end of the year all banks should align themselves with rates below 1% up to 25 years, and this, whatever the profile of the borrower. s by our banking partners. All the same, it slips a forecast for September or even fall: The rate at 1% could become the norm in the coming weeks.