Credit and loans: Is there really a difference?

Anyone who borrows money from someone else and later pays it back with interest takes out a loan. Or is that called a loan? In normal usage, both terms often get mixed up. But do they really have the same meaning? Or is there a difference that only experts know and use? Good question. Here comes the answer.

One thing is clear: Whatever the case, it’s money borrowed

Banks, savings banks and other financial institutions often stir their advertising drums for credits or loans. Sometimes they advertise a cheap car loan, sometimes a low-interest real estate loan. But why is it called like this in one case and like this in the other? Does it make no difference whether it is a loan or a credit? Or is there a difference between the terms? And if so, is it important for the customer?

This much is certain: A loan is when someone temporarily borrows a certain amount of money – for example, from another person or from a bank. For example, when they want to fulfill a wish for which they themselves have no money.

The borrowed amount is repaid at some point. There is also interest. How long the repayment takes and how high the interest is stated in the corresponding contract. Whoever borrows the money takes out a loan or a credit with it. In other words, he makes debts which he later settled as agreed. That would be clarified. But the difference between credit and loan is not yet clear.

The law only knows “loan”…

A look at the German Civil Code is hardly helpful. There, in the relevant paragraphs 488 to 490, only loans or loan agreements are mentioned. The term “loan” does not appear there at all.

Nevertheless, the term “credit” is generally used as a generic term for the interest-bearing lending and repayment of money. The term loan, on the other hand, is often used as a subordinate term. This means that a loan is always a credit, but credit is not always a loan. However, there is no official justification or legal rule for this.

Term and amount of money borrowed – is that the difference?

Just as if by magic, two other differences have also become naturalised. On the one hand, they concern the duration and, on the other, the amount of money borrowed. An unofficial guideline looks like this:

A commonly used distinction between a loan and a credit.