What is Loan?
A loan is an amount borrowed from a lender and paid back in installments, with interest. The borrower’s commitment to pay back the loan is in a series of regular installments over time or all at once.
The lender may be a bank, credit union, or other financial institution. The borrower must provide the lender with personal information such as a social security number, proof of income, and a valid ID. The borrower may also be asked to provide collateral, such as a car or house, to secure the loan.
There are different types of loans, such as secured and unsecured, variable and fixed-rate, and short-term and long-term loans. Fast loans require collateral, such as a car or house, while unsecured loans do not require collateral. Unlike fixed-rate loans, which have an interest rate that remains constant for the duration of the loan, variable-rate loans have an interest rate that can change over time. Short-term loans are repaid within a few months, while long-term loans may take years to repay.
The interest charged on a loan depends on the lender, the type of loan taken, and the borrower’s creditworthiness. Generally, the higher the credit score, the lower the interest rate.
What is a Limit?
A limit is a predetermined amount of money that can be borrowed from a lender. The most money a borrower may obtain from a lender is based on the borrower’s creditworthiness, income, and other factors.
The limit is the maximum amount a lender will lend to a borrower for a particular purpose, such as buying a house, car, or other large purchase. The lender sets the limit based on the borrower’s creditworthiness, income, and other factors.
The limit may also include other restrictions or fees that the borrower must pay before or during the loan process. For example, some lenders may require a down payment or security deposit to secure the loan. Other fees may include an origination fee, closing costs, or an annual fee.
The limit can vary depending on the lender and the type of loan. For example, some lenders may have a higher limit for home loans than car loans. some lenders may limit the amount of money a borrower can borrow based on the borrower’s credit score or debt-to-income ratio.
Difference Between Loan and Limit
- A loan is a type of debt that is repayable over a specified period, at a fixed interest rate, while a limit is a set amount that can be borrowed or spent.
- A loan involves a long-term commitment instead of a limit that can be used for short-term needs.
- A loan involves a lender-and-borrower relationship, while a limit does not require a borrower-and-lender connection.
- Loan payments are made in scheduled installments, while a limit is used up to a given amount as needed.
- A loan is used for larger purchases, such as a car or house, while a limit is used for smaller purchases, such as groceries or bills.
Comparison Between Loan and Limit
| Parameters of Comparison | Loan | Limit |
| Purpose | A loan is used to finance a specific purchase. | A limit is a money that can be borrowed against or spent at any given time. |
| Repayment | Loans must be repaid over a fixed period. | Limits are replenished as they are used. |
| Interest | Loans have a fixed interest rate. | Limits may have variable interest rates. |
| Security | Loans require some form of security, such as a mortgage or other asset. | No security is required. |
| Duration | Loans will have a specific repayment term. | Limits are open-ended. |