How do I know which credit to apply for? What are the types of credit? How many are there? In this post we indicate which are the types of credit, and what each of them is for. So, depending on your needs, you can choose which one you think is the most convenient for your situation.
Before that, we will also explain a little about what a credit consists of and also add at the end what the criteria are for choosing one credit or another.
What is a credit?
As we have explained in some other post, a credit is a financial operation through which a person or normally an entity assigns to another an amount of money, in exchange for the latter to return it to them, together with the interest generated and accrued, in the terms and conditions established by the loan.
In this way, the person who assigns his money is called the creditor, and the person who must return it is called the debtor. This would be a bit like the scheme of the operation:
Categorization of Credits
As we mentioned, there are many types of credit, depending mainly on three variables: term, destination and guarantee. Bank credit is normally granted by a lending institution, typically banks, through the conclusion of a contract.
It is very important to differentiate it from loans. While in the credit, the bank grants you an amount of money and you can dispose of it or not, paying only the corresponding interest of the part you use, in the loan, you pay interest for the whole amount of money you are lent, whether you use the money or not.
Credit cards
Credit cards are the main source of financing for anyone. Their main advantage is an open line of credit, anytime, anywhere, with just a plastic in hand.
Like all credit, it allows you to have money that you don’t have at the moment, but that you are sure to have in the immediate future, for example, with the salary you will receive next month. Credit cards can be divided according to their issuer, which can be:
- Bank cards, those issued by a financial institution such as a bank or a savings and loan or cooperative
- Departmental or Retail Cards, also called non-bank cards, which are offered by department stores or large retail stores.
On both the credit card and the department card, you can take advantage of interest-free monthly promotions and other additional benefits.
To summarize, the characteristics of this type of credit are:
- Term: very short
- Destination: free
- Warranty: none
Personal Loans
Personal loans are characterized by open credits of free availability, so you should not inform us that we will use them. For this reason, you can use it for any objective, whether it be consumption, investment, purchase of goods, remodeling of your home, travel, and a long etc.
These loans are offered by banks or other financial institutions, as well as by companies (there are many that offer them online) that are dedicated exclusively to providing them.
The basic characteristics of this type of credit are as follows:
- Term: from short to medium term
- Destination: free
- Warranty: none
Pledge Credits
The Pledge Credit is a specialized financing, in this case, for the purchase of a new vehicle. Also called automotive credits, they have a specific purpose which is the purchase of a certain vehicle, whose ownership will remain “pledged” until the debtor pays the entire debt.
The vehicle cannot be sold until the pledge is lifted (which occurs when the credit is cancelled). offer specialized financing. The advantage of these credits is precisely their specialization, since the amounts and payment plans are designed according to the objective.
The basic characteristics of this type of credit are as follows:
- Term: from medium to long term
- Destination: specific
- Warranty: vehicle
Educational Credits
The Education Credit is another specialized financing, which can only be used for the payment of tuition or university fees. The main advantage of these credits is the special interest rates and extended payment terms until the end of the degree, with grace periods that can be extended as well.
The basic characteristics of this type of credit are as follows:
- Term: from medium to long term
- Destination: specific
- Warranty: none
Mortgage credit
It’s the quintessential credit. In general, they are the ones that give more term and those that give more money, due to the cost of the good that is bought: a real estate property. It is a credit that is not requested lightly as any online product.
It has many variables and is the one that greater detail must have, due to the significant amounts that will end up paying in interest and financing that can last a lifetime, depending on our age. It has the highest requirements, both personal and verifiable income, and the mortgage will fall on the property, which cannot be sold until it is lifted.
The interest rates are the lowest in the market, and the terms are the longest. What characterizes the mortgage credit, is that the amount of money granted by the entity must be used for the purchase or realization of a house on a land you already have, or the acquisition of a land.
Since it is a purchase of a property with a considerable value, the bank requires a guarantee to ensure the payment of the money you have borrowed. That guarantee is the land or property you have purchased with the loan.
The basic characteristics of this type of credit are as follows:
- Term: very long term
- Destination: specific
- Guarantee: real estate property
Commercial Credits
Loans oriented towards SMEs or companies are the so-called production loans, by which companies are financed and funded for a certain purpose, for example, purchase of raw materials or expansion of a manufacturing plant, to give just two examples.
These are production-oriented loans, which is why they are called productive loans, and in some cases they are granted at rates subsidized by the various National States.
