Loans and loans are associated with incurring financial debts and, as words in colloquial language, are sometimes used interchangeably. However, from a legal point of view, these are different contracts. Today, I invite you to look at the differences between them.
Loan and credit.
The main issue is the various laws that regulate them. The loan agreement is regulated in the Civil Code ( Articles 720 – 724 ), whereas the loan agreement is governed by the Banking Law ( Chapter 5 ).
The loan boils down to the fact that under the concluded contract the lender undertakes to transfer to the borrower the ownership of a certain amount of money or goods marked only with respect to the species (ie substitutable and defined according to generic features, e.g. coal, grain, sugar, etc.), and the borrower is obliged to return the same amount of money or items. The important thing is that when a loan comes to change the ownership of money or things marked, as to the species, they become the property of the borrower. If the object of the loan is money, it is enough to indicate the amount of the loan in the contract. When the subject of the loan are things marked with the type, the contract must specify their type and quantity.
Loans can be provided by anyone, both a natural person and an institution. The condition is that the lender should own the borrowed money or things.
What, in turn, is the loan agreement? It is a contract based on which the bank undertakes to make available to the borrower for a specified period in the contract a certain amount of cash for the set purpose, and the borrower undertakes to use the money on terms specified in the contract, return the loan used with interest in fixed repayment terms and payment of commission on the loan granted. The subject of the loan can only be money, can not be it, unlike the loan items marked as to the genre. When granting a loan, the bank provides the borrower with certain cash, but no transfer of ownership to the borrower.
The loan may be granted only by a bank within the meaning of the banking law, domestic or foreign. The lender may also be a credit institution or a branch of a credit institution operating in Poland. Loans may also be provided by cooperative banks, as well as cooperative savings and credit unions ( SKOKs), but only to their members.
If the entity who is not a bank as a lender have concluded an agreement on the content of the agreement, such as a bank loan agreement under civil law would be a loan.
The form of the contract.
The loan agreement does not have to be concluded in a special form. It can even be an oral form but remember that a loan agreement, the value of which transfers PLN 500, should be confirmed in a document for evidence purposes.
As of September 8, 2016, this requirement for a loan agreement has changed in both amount and form. You will read about it here: “Loan agreement over PLN 1000 and the document form”.
The loan agreement should be concluded in writing. However, it is also a reserved form for evidential purposes. What does it mean? This means that if the contract is not concluded in writing, this is important but in court you can not prove it with evidence from witnesses or from interrogation of the parties. However, when the borrower is an entrepreneur, failure to comply with the written form is not threatened with this sanction because the provisions of the form for evidential purposes do not apply to contracts between entrepreneurs. The written form also requires the change of the loan agreement (ie, the conclusion of an annex) and its termination.
The loan agreement may also be concluded in electronic form and this form is equivalent to a written form, if the content of the contract is duly created, recorded, transferred, stored and secured.
In the case of loan agreements concluded by Credit Unions and their members, a written form is required under pain of nullity.
Purpose of the contract.
The loan does not have to be dedicated to a specific purpose. There is no obligation that the purpose of the loan is written in the loan agreement, but you can do so. If the parties do not specify the purpose of the loan agreement, the borrower may freely dispose of the borrowed funds, and the lender has no right to control how they are used.
Things are different in the case of a loan, because the loan is granted by the bank for the purpose set in the credit agreement. The borrower is also required to use the funds made available by the bank under the terms of this agreement. If the funds are used against the determined purpose, the bank may demand immediate repayment of the loan. In practice, borrowers have more freedom when using loan money with consumer or business loans to finance the company’s day-to-day operations. Determination of the purpose of the loan is mandatory in the loan agreement. The bank has the right to control whether the funds from the loan are used in accordance with the purpose of the loan and the terms of its use.
The loan as a contract comes to fruition by the lender’s agreement with the borrower only as to its granting. If the parties conclude an agreement, the lender is obliged to issue the loan subject. The claim of the borrower for the issue of the subject of the loan expires after six months from the time when it was to be issued in accordance with the contract. The loan object may be issued in any way that allows the borrower to freely dispose of the borrowed money or items.
On the basis of the loan agreement, the bank is obliged to give cash to the borrower. The loan agreement should specify how and in what period this obligation should be performed by the bank. The loan amount may be made available to the borrower on a one-off basis or in installments (so-called tranches), the payment of which may depend on meeting certain conditions (eg submitting documents confirming completion of a given construction stage in the bank). If nothing in the loan agreement has been established in this matter, the borrower may demand that the bank give him the full amount once.
In practice, depending on the type of loan, there are various ways of giving cash to the borrowers. This can be done by transferring to a specific bank account of the customer, opening a dedicated credit account to which funds are transferred (the borrower may order cash settlements for these funds) or within the current borrower’s bank account. overdraft (the borrower can settle accounts on this account, causing the debit).
The funds are made available to the borrower under a loan agreement for a fixed period of time in this contract. The loan agreement should therefore specify the repayment date. Depending on the content of the contract, the loan may be repaid in installments or once. The loan utilization period is determined by using a time unit (days, months, years) in which the loan repayment will take place. As a rule, the dates of repayment of principal and interest installments are recorded in the loan repayment schedule, which constitutes an annex to the contract. The amount of installments can be constant or decreasing. With the decreasing amount, the interest decreases with the repayment of subsequent installments.
In the loan agreement there is no requirement to indicate the date of return of the loan, but of course it can be done and usually the term specifies it. If the deadline is not indicated, the debtor is obliged to return the loan within 6 weeks after the loan provider terminates the contract.
The loan is payable. For its granting, the bank pays a fee in the form of commissions and interest. The interest rate on the loan is a reward for the borrower’s use of the money made available to him by the bank. The interest rate can not exceed the maximum interest rate, which can not be more than four times the Lombard loan of the National Bank of Poland on a yearly basis. If the amount of the reserved interest exceeds the maximum interest, the maximum interest shall be due.
The ways to determine interest rates vary. The interest rate can be given numerically or by the way it is calculated. Loan agreements often use a method in which the interest rate is linked to the amount of the base rate (eg Jabank or Nibore rate) plus the so-called bank’s margin.
Depending on the loan agreement, the interest rate may be fixed or variable. The fixed interest rate does not fluctuate during the term of the loan agreement, which means that the bank can not unilaterally change its amount. To change it, you need the consent of both parties and make an annex to the loan agreement. The variable interest rate may change as a result of events from an independent bank, eg as a result of raising NBP interest rates or as a result of a bank’s decision. The obligation to pay interest in the loan agreement is a necessary element of this contract.
However, the loan can be paid and free. It will be payable if the parties agree that the lender should be remunerated by the borrower, for example in the form of interest or commission. When determining the interest rate on a loan, one should also remember about maximum interest.
In order to secure the loan, the bank may demand different methods of security specified in the Civil Code and the Bill of exchange law and in accordance with customs accepted in domestic and foreign trade. Theoretically, it is not mandatory to establish collateral with a loan, except when the bank provides financing to a borrower who is not creditworthy. In practice, banks demand collateral.
The Civil Code does not prescribe nor does it prohibit the use of collateral when granting loans. Therefore, depending on the parties’ arrangements, the loan may be secured or unsecured.
The differences between a loan and a loan are much smaller when a bank loan is granted by the bank. In accordance with the Banking Law, the provisions on repayment and interest on the loan apply to the cash loan agreements concluded by the bank.
It should also be remembered that the Consumer Loan Act applies to loan or credit agreements granted to consumers. You can learn more about this subject from the entry: “Consumer credit, what it is and why it is worth knowing.”
To the extent not regulated by the above-mentioned Act, Banking Law applies to credit and loan agreements concluded by the bank with the consumer.