Whether it is a real estate mortgage, a car loan, or a personal loan, there are differences between financing and loans that should be understood before choosing the best way to get the funds needed for the purpose you want.
Loan and financing: similarities
Let’s take a look at the significant differences between the two types of financial assistance you can get to make your payments. There are many similarities, however, that deserve prominence.
Banks and financial institutions, in general, are known to be particularly strict in their lending and borrowing processes, requiring a handful of documents that need to be presented. These documents are usually proof of income, income tax, work permit, payslip, CNPJ of your company (if it is a loan or financing for Legal Entity), and valid identification documents.
You must have a solid job, with a sufficient income to guarantee the payment of the installments of the financing, besides that the employment is stable, or that your company has reported profit for the last months. Both loans and financing depend on the assessment of the bank or financial institution, including the loan or financing limits that you are entitled to. This evaluation ensures that whoever gets the loan or financing is able to pay the installments, and exponentially reduces the risk of default by the borrower.
Loans and financing are different, but both can be good options for those who need to make payments with resources that are out of sight at the time. (Photo: blog.mobills.com.br)
Loan and financing: differences in approval
An initial difference is in the ease of loan approval or financing.
Approving a loan is much easier than approving a loan. The loan almost always does not have a specific purpose, that is, the person can use the loan for any purpose, from paying bills and debts to making purchases of products, services, and other things more. Generally, when making an account at a bank, you will have a pre approved loan limit to use. Although there is this limit also for financing, the financing limit will need a new analysis when you use it.
In funding, on the other hand, approval is more difficult, and it must, necessarily, be used for the purpose for which it was approved. For example, you can not use a car financing to pay for a home, just as you can not use a business machinery financing to buy a particular car. For financing, more documents are required at the time of approval or use of the same, ensuring that the borrower will be able to pay the installments.
Loan or financing: which is the best?
Bank loans, because they are easier to obtain, have a higher cost for the borrower’s pocket. On the other hand, they give greater freedom to those who take the money to use as they wish.
Since financing, such as automobiles and real estate, interest rates are lower not only because of the more rigorous approval of financing, but also because financing has access to guaranteed funds that are more “cheap” for the bank to lend. However, the financing has a specific purpose, a guaranteed purpose, and can not be used for other purposes. In other words, the borrower will be limited in the fate that will give the money. In addition, certain financing, such as the automobile, has some limitations for approval, as the requirement of the vehicle not having more than 10 years of manufacturing. In the case of real estate, it may be required that it has never been occupied before, in order to obtain cheaper financing.
Another difference is the time taken to pay off loans and the time taken to pay the loan. While a loan has short repayment terms, usually no more than two years, a vehicle financing can go from 60 months of repayment term. A real estate financing can take up to more than 30 years to get paid. The longer the term, the tendency is for the parcels to be smaller and easier to pay.
Loans also give access to a much lower amount than financing. So consider this carefully when you decide.
Considering the right choice of financing
The process of obtaining a loan or financing should take into account your specific demand. For example, you may want to finance an older car, but there is no line of credit available for that car. Your only option will be the loan. But if you have how to choose between financing and the loan, financing is the best option.
Have you taken out a loan or a loan? How was it? Could you choose or were you limited?