By law, loans are not the same as loans. Other names of these products are followed by other rights and obligations of institutions offering them and clients incurring such obligations.
For the average customer, credit and loan obligations are one thing, and these words are used as synonyms for the same product. In fact, it’s different. However, it is hard to find out what distinguishes these products from the multitude of advertisements and messages saturated with specialist language. So let’s know more.
Who can grant a loan and who can grant a loan
The loan as a financial operation is regulated primarily by the Civil Code. According to him, anyone who has the money can grant a loan. Therefore, we can make such a commitment with family, friends, on a TrueBank or other financial institution.
The method of concluding a loan agreement is optional. It can be in written or oral form. It can also be concluded via electronic means of communication, e.g. via SMS.
On the other hand, this loan is granted only to banks, cooperative savings and credit unions and credit institutions indicated in the Act. They do it based on the Banking Law.
It is very important that the funds allocated for loans with payments go after other clients of the institution. In practice, it looks like the money allocated by one person to a deposit or savings account is allocated by the bank to a loan for another person or company. Meanwhile, the loan company uses only its capital in its operations. What does it matter?
There is much more responsibility on the bank and credit unions than on the TrueBank. For this reason, the law very much limits the number of entities that can grant loans. The Act also requires that the loan agreement always takes the written form.
Lenders are supervised by state offices to ensure financial security for all parties to the transaction. This supervision particularly cares for the interests of passive participants of the transaction e.g. deposit owners or investors, whose money is transferred by banks and credit unions to other clients through loans.
Tools for assessing the credibility of customers taking out loans and credits
Further consequences follow from these basic legal considerations. Dispose of other people’s money that makes lenders need to see exactly who they will lend to them. That is why the loan granting procedure seems very complicated and overloaded with formalities.
Institutions granting loans use many tools to assess the reliability of potential borrowers. The most important of them include:
- Creditworthiness – current and forecasted financial possibilities of a given client. The amount you can borrow and the amount of the monthly installment are calculated based on your earnings and monthly cost of living and employment stability.
- Credit history – shows how a customer has dealt with repayment obligations in the past. There are two types of credit history: positive and negative. Negative form include late repayments or lack of repayments recorded, bailiff proceedings.
In addition to some inquiries, some business information bureaus also provide a positive credit history, i.e. liabilities that were not a problem to be repaid as they were scheduled.
- Credit scoring – scoring of the risk of borrowing money to a given client. Calculated independently by the institution on the basis of a survey and provided documents, or in the form of a report from the Credit Information Bureau.
Scoring includes information on creditworthiness and credit history. Thanks to it, the creditor can assign the applicant to a group as close to him as possible and on this basis forecast his future behavior.
Credit risk assessment tools can be used by loan companies, but they are not obliged to do so. If the borrower does not pay the debt, only the loan company will lose the money. Therefore, they more and more often limit the risk of losing funds and check clients for being entered in the registers of debtors or the number of liabilities incurred.
Credit and loan – maturity
Banks must be sure that they will get back the money lent to borrowers. Thus, in the contract they specify exactly what the repayment of the liability will look like. They provide customers with a repayment schedule and set penalties for delay.
On the other hand, loans do not have to have a specific repayment date. But it is in the interest of loan companies to use the same solutions as credit institutions. Therefore, they oblige their clients with a contract to stick to deadlines.
It happens that in less formal situations, such as when we borrow money to family or friends, the loan will be granted for “eternal failure”. This is especially true for small amounts. This form of liability is more flexible than credit, because due to the lack of legal restrictions it can be tailored to the needs of both parties.
Permitted loan and credit costs
Since the TrueBank provides loans from its own funds, it determines whether and how much it wants to earn on this transaction. The upper limits of these earnings have been set by the so-called The Anti-usury Act of 2016 (Journal of Laws 2015 item 1357).
It may be, however, that the company has an incentive to provide loans without credit union applied for dining at. According to the findings of the Chwilowo.pl comparison website, there are many such entities.
This option does not apply to loans. The Act imposes payment of this form of liability. For customers to want to deposit money in the bank, it must offer profits that come from loans. This is how transactions are fueled: someone has, and someone needs, so the credit institution acts as an intermediary between these parties and takes responsibility for the refund of their owners.
(Un) important purpose of the loan commitment
The law also imposes the purpose of allocating funds from the loan. Apart from the exceptions (e.g. student loan, credit line on the account, credit card) the applicant must provide the specific purpose of the money. The lender has the right to control the way they are issued and demand that the client justify such action.
It is different with loans – these are granted to any borrower’s plan. Checks on invoices, invoices or contracts are not used here. That is why loans can be taken for trivial purposes, from the point of view of a bank’s credit institution: shopping, holidays.
This difference makes the bank may withhold payments Æ ę next tranche of the loan. This will happen when he finds that the borrower money wit improperly Expenditure ± dz e. Misuse of funds may also have other consequences: the imposition of penalties and a negative entry in economic information bureaus.
A loan cheaper than a loan
The comparison is simple when we focus on a standard loan and a standard loan. It turns out that although the formalities for loans are more complicated than for payday loans or non-bank loans, the bank or MOSK bears much less risk of default than a loan company. Why?
The lender has previously rated the customer using statistical tools and therefore knows his financial capabilities and has control over the spending. In a word: it has an advantage in this relationship.
However, a borrower for a TrueBank is a big question mark. The lender does not know what the client will spend the money on and what his financial capabilities really are. This means that the risk incurred by payday companies is much higher than by banks. In other words: the probability that the borrower will not repay the debt and thus the TrueBank will suffer a loss increases.
The higher the probability that the payday loan is not repaid, the higher its cost. In this way, lenders compensate for losses incurred on unreliable debtors.