Loan, finance – is there a difference between the terms?

Three frequently used terms from the world of business, the meanings of which are often mixed up. In addition to various differences, there is, in fact, a close connection, and both will be explained in more detail here. The most common concept is that they relate – both from an entrepreneurial and a private perspective – to the source of funds; And “medium” means “capital” here.

In other words: All three of the above terms deal with the procurement of capital, whereby the financing itself represents a kind of generic term that refers to every conceivable form of capital procurement. It also covers funds from its own sources, so-called equity. Only with loans and credits does the situation become more concrete, that is to say: These are methods of obtaining debt.

So let’s start with a closer look at the loan

The difference between which and the directly superordinate term, credit, by the way, is that a loan is a form of the same. The loan is a long-term loan in which a credit institution provides a fixed amount in whole or in part.

A distinction is made between the nominal amount and the actual amount of money paid out – also called the nominal amount. This difference is called the damnum, which in turn can appear as a premium (surcharge on the repayment amount) and a discount (discount on the payment amount).

The repayment of the loan plus the interest accrued is made in installments, or in a sum at the end of a previously contractually agreed term, which in practice usually extends over several years.

The explanation of the loan already allows some conclusions to be drawn about the nature of the overarching and more comprehensive term, credit. Generally speaking, this is the transfer of capital or temporary purchasing power.

As mentioned earlier, the loan is just a form of a loan

As mentioned earlier, the loan is just a form of a loan

It must, therefore, be differentiated from other forms such as guarantee, acceptance or discount credit. Loans are usually differentiated according to maturity: there are short-term loans with a term of less than one year, medium-term loans with terms of between 1 and 4 years and finally the long-term loans with terms of more than 4 years, which in most cases the loan that has already been treated also belongs.

In addition to various other features, loans can also be differentiated according to their purpose or their collateral. Common to all forms is that it relates to borrowing in relation to the borrower (the debtor), which brings us back to our generic term, financing.

This ultimately stands for all measures relating to fundraising and repayment, and therefore also includes self-financing or self-financing without borrowing.

Leave a Reply

Your email address will not be published. Required fields are marked *