What is a difference between loan and credit in the law system? Let's say US law. What does it mean to grant a loan, use a loan or to have a credit? What regulations describe both credit and loan?
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1 Answer
The terms are used in inconsistent and overlapping ways. Their meaning has to be determined from context. Words do not have universal meanings in all contexts in the law.
A loan generally refers to a delivery of something (often money) with a legally binding expectation that it will be returned with some additional compensation to the lender, later on. To "use a loan" would mean actually receiving a loan from someone.
A "grant of a loan" usually means agreeing to make a loan in the near future, rather than actually carrying out the loan at that time.
Credit is a broader term with multiple senses. When a purchase is made "on credit", the sale is accompanied by a loan to the buyer to assist the buyer in making the purchase.
But, the term a person's "credit" can also refer to an ability to borrow money, rather than to money that has already been loaned.
A third sense of the word "credit" is a technical accounting sense of the word. In double entry accounting, a credit is an event that increases a person's assets or reduces their liabilities (in contrast to a "debit" which does the reverse). A transaction that is a credit to one party in double entry accounting is usually a debit with respect to the other party, or is part of an offsetting debt-credit pair of impacts on the person's books in a single event.
answered Jun 3, 2020 at 8:21
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Thanks for very broad answer. In Poland after 50 years of communists economy we forgot what the loan and credit really means. Between 1945 and 1989 law was looking at these things from perspective of operating on a common nation's property without really private property. In 1952 constitution guaranteed to deliver "people's credit". There were some exceptions as government owned (90%) companies finally traded with people. And now we have mixed both. Banks still believe that credit means "use of their money". I know § from IT, HU and RU law, could you point me to actual law is US regulations? Commented Jun 4, 2020 at 9:51
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and I think we can add one more meaning: to open a credit / open credit line, what means ability to make debt (use loans) up to defined limits. This kind of "open credit" is available e.g. via credit card. Commented Jun 4, 2020 at 15:32
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@RyszardStyczynski For the most part, in the U.S., terms are defined in case law, not in regulations or statutes. There are exceptions, but unlike the civil law system used in Poland, consistent statutory and regulatory definitions aren't the norm. See, e.g., Black's Law dictionary (2d ed) which has five different senses of the word, all drawn from case law. thelawdictionary.org/credit/…. There are thousands of laws using the term inconsistently. Commented Jun 6, 2020 at 2:35
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1Thank you. I see it's even more complicated in US than in Poland. However it's anyway natural that you can correctly name things. In Poland credit is a synonym of debt. That's bad. It may be interesting for you that our loan contract art.720 cc was imported from soviet civil code in 1964 (art.269). Interesting is that USSR cc stopped perceiving money as a thing. Russia may be a strange country but they are not dumb - making money an abstract thing is a great achievement of soviet lawyers. Poland was one of first in EU which moved loan from real contract (roman mutuum) to consensual in 1934. Commented Jun 17, 2020 at 21:44
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1@RyszardStyczynski In that case, looking to Russian definitions ca. 1964 would seem more fruitful than looking at U.S. definitions, because a Russian definition would more faithfully reflect the intent of the drafters. Commented Jun 22, 2020 at 19:43