Credit – What is a loan?
If a lender assigns a thing to a borrower, or usually money in the form of cash or book money, this is a loan. The term credit is generally used in connection with the transfer of money. However, a loan can also be based on the transfer of so-called justifiable matters (property loans). The essential feature of a loan is that the borrower (debtor) does not have to provide the service immediately, but only after a fixed period of time. With the transfer of use, the borrower agrees to repayment or re-transfer and usually has to provide a consideration, for example in the form of interest.
The loan in corporate finance
Many companies use loans to make specific investments when there is insufficient equity. Depending on the purpose loans are differentiated into
An investment loan is used to finance the purchase of machinery, equipment or factory buildings. The working capital loan is used to finance current assets such as purchasing materials or bridging high receivables. The terms of the loan, such as term, interest, repayment and handling charges, are negotiated between lenders, usually a bank, and the company and recorded in a loan agreement.
Depending on which agreement for the repayment of the loan or loan between the bank and the company has been agreed, it concerns a
Maturity loan, term loan or fixed loan
Repayment loan or installment loan
In the case of an annuity loan, the borrower pays the same annual installments (compare the contribution to installments) to the bank. The installments include both interest and a repayment installment. At the beginning of the repayment, the interest portion is high and the repayment portion is low. Towards the end of the term, the ratio changes and the repayment portion predominates. With the last installment, the annuity loan is fully repaid.
Maturity Loans: During the life of the loan, only the agreed interest is paid. The interest payments usually remain constant over the entire term if the interest rate does not change. The loan amount must be repaid in one sum at the end of the term (scheduled repayment).
In the case of a repayment loan or a repayment loan, a fixed and constant repayment installment is paid to the bank. In addition, there are interest payments, which are lower over the term of the loan, as the interest payable loan amount is reduced by the repayment.
Distinction between credit and loan
In §488 I of the Civil Code (BGB) a loan is defined as the provision of a sum of money. The concept of credit is broader and includes different types of credit, such as the discount loan or the acceptance loan. A credit relationship between the creditor and the debtor is therefore not legally regarded as a loan, but constitutes a so-called agency contract.
Cash credit – What is a cash advance?
The cash advance is a fast and lender-insecure way of lending to individuals. Although it is ideal for consumers whose credit rating is only briefly endangered, but it also leads to indebtedness. As a rule, the cash advance is no longer paid in cash, even if the term suggests it. Rather, the loan amount is transferred after superficial examination by flash transfer to a checking account. Cash loans are particularly well suited for small sums like a few hundred or 1,000 to 5,000 euros. In addition, the default risk is too high. The terms are usually less attractive to the customer, as in the lending after thorough review.
What type of loan and conditions are there?
The cash advance allows consumers to quickly borrow for a small amount when a certain amount is needed immediately. The settlement of a comparatively lower amount of invoice would be such an occasion, in which the observance of the deadlines is required. The form of credit is particularly well suited for people who need to bridge short bottlenecks but can count on a fixed income in the next month or quarter. However, the loan is defined by the fact that most of the time only a superficial credit check is made to raise the cash credit. An application for the Schufa documents and similar steps will be canceled. The lender relies on the information and receipts of the borrower. For consumers who are in long-term financial emergency situations and can muster only with difficulty the evidence of creditworthiness, this approach has a high debt potential.
Cash credit for entrepreneurs
By definition, which is not fixed and varies from bank to bank, the cash advance is consumer credit. It is usually only available to individuals for private purposes. An exception may be purchases for financially secure self-employed who, for example, want to acquire new computer hardware or facilities for their enterprise. In such a case, however, it is worth consulting with the selected bank to see if another loan can be made quickly and on better terms. The repayment of installment loans, often referred to as instant loans, often begins immediately or with very short payment pauses. The payment is made in relatively high and few installments.