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Loan and financing: is there a difference between them? Many people treat these two terms as synonyms, as if both were the same as “borrowing money from a bank or someone else”. However, despite having some things in common, financing and loans are not the same thing.

Therefore, in this article, we will explain the meaning of loan and financing, pointing out in which aspects they come closer and farther apart. We’ll also show you which one is more advantageous for buying a property and why they don’t have similar interest rates.

After all, what is the difference between borrowing and financing?
What is financing?
What is a loan?
Which interest rate is higher: loan or financing?
Which type of loan is cheaper?
Can you get a loan to buy a property?
After all, what is the difference between borrowing and financing?

The main difference between a loan and financing is in the allocation of the money obtained from the operation. A loan usually works like a “suitcase” of money that the bank puts in your hand, let’s say. You can spend it however you like – but you must pay it in installments, with interest.

On the other hand, financing is conditional on the purchase of a specific good, which the bank needs to know what it is. It’s how it works with real estate or cars, for example. When you buy a property, the money doesn’t even go into your account – it goes straight to the debtor.

That way, you can buy an apartment with “borrowed money” without even receiving that money. After that, you also need to pay the amount back to the bank, as in a loan (with the interest that was defined in the contract).

Another difference is that, in financing, the financed goods themselves serve as a guarantee for the banks. In loans, the institution relies only on its ability to make payments. That’s why, if you don’t pay the mortgage installments, you risk losing the property.

As the apartment is sold (fiduciary) to the bank, it only becomes officially yours after you pay off your debt. Until then, if you fail to pay the installments, the bank can take ownership of the property from you and sell it at auction for the full amount of your debt.

In addition to these aspects, granting a loan is simpler than financing it. In the second modality, the bank needs not only to analyze your financial situation, but also the good you want to buy. That’s why institutions order property valuations before signing the financing contract, for example.

What is financing?

Financing is a credit operation in which the amount released by the bank is necessarily used for the purchase of a specific asset, which is included in the contract you will sign with the institution. As an example, we have the financing of education, cars and houses.

Thus, the bank needs to know exactly what property you are going to buy, especially in the case of real estate and automobiles. The resource is released in the right measure for this purchase – neither more nor less. In this type of operation, these properties serve as a guarantee for the bank. If you do not pay the debt, the institution can “take them” to cover the unpaid installments.

Financing tends to have cheaper interest rates because it has this type of guarantee and stricter criteria for granting it than a loan. There are still some government regulations in force for financing, as a way to encourage the purchase of a certain essential good for the population.

Through the Housing Finance System (SFH), for example, housing properties of up to R$ 1.5 million can be purchased for a Total Effective Cost (CET) of less than 12% per year. This cost includes not just interest, but insurance and other fees.

Financial educator Nath Finance explains the difference between financing and borrowing
What is a loan?

The loan, on the other hand, is an operation in which the money released by the bank ends up in the customer’s account, so that it can be spent in the way the customer sees fit. There is no obligation to allocate this amount for any specific purpose. The loan can be used for renovations, travel, graduation parties and whatever else is needed.

Which interest rate is higher: loan or financing?

By the logic we’ve already described, it’s easy to know which has higher interest rates, whether loans or financing. Of course, it’s the loans. Financing has assets as collateral and a cycle of more thorough analysis by banks before they are approved. Because of this, they represent a lower risk of default for banks.

And the less risky the operation, the better the conditions offered to customers. That is why interest on financing, in general, is much lower than on loans.

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