Do you know the difference between credit and financing?

Do you know the difference between credit and financing?

Credit and financing are often cited together. Although both can be used to renovate the house , buy a car or even make an exchange , there are important differences between these two financial modalities.

In order for you to correctly use one of these resources according to your objective, we will show you the main differences between credit and financing and how you can apply for them. Check out:

What is credit?

What is credit?

The credit or loan has no restrictions on its use, that is, it is a value granted that can be used for any purpose. At the time of contracting the credit, there is no need to be accountable for how the money will be used, although some options are facilitated.

The loan can be requested either from a bank or a financial institution, which will release the agreed amount through a credit and profile analysis. Hiring is very simple and can be done even over the internet; the installments are divided so that they fit in your pocket and added interest.

What is financing?

What is financing?

Unlike credit, contracting financing is a little more difficult and bureaucratic, however, interest rates are lower. This feature is defined as an amount released so that you can buy something that must be proven and detailed in the contract. In short, financing is a credit with a specific purpose.

It can also be ordered from either a bank or a financial institution. To do this, research about interest rates, payment terms and whether the financial institution is reliable.

Generally, the release of financing will depend on two analyzes. The first is credit, which is usually more bureaucratic than the loan, and is taken into account for the second, where the justification for using the requested amount is analyzed. That way, it becomes more restricted. However, when released, you will be able to purchase your good or service without any problem.

After all, which one is best for you?

After all, which one is best for you?

As you can see, credit and financing have some important differences that must be taken into account when choosing them. To help define the best modality for your goals, review the following points:

• Ease of hiring

As we said, credit is simple and quick to request and approve, and information about how this amount will be used is not a requirement. However, financing requires a more complete analysis of your situation and information about the asset you wish to acquire.

• Interest rate

The financing has a defined purpose when contracting, in some cases, the acquired asset is placed as a guarantee that you will comply with the payment of the installments. Therefore, the risk of the financial institution that makes the money available decreases. All of this contributes to lower interest rates, since the risk is also lower.

As in credit the financial institution is not aware of the purpose that the money granted will have, increasing the risk of default, interest ends up being slightly higher.

Credit and financing are good alternatives for when you need to acquire a good or pay a debt. For this to happen smoothly, always research the payment terms and be sure to make a financial plan