What is a Loan

In the financial world, a loan can be like that one-of-a-kind sale shirt: unique! You can already imagine yourself ready to rock it. But do you really know what it involves?

A loan is a fixed amount of money that a financial entity grants to an individual or business. It is expected that this money will be repaid, usually with interest, in agreed periodic payments. You’re committed, like in a serious relationship, but financial.

Main Features

• Fixed Payment: You pay the same amount regularly. No surprises.

• Interest: The cost of having the money now instead of later.

• Defined Time: From months to decades. Probably longer than your trading experience.

Common Examples

Imagine buying a house or a new car, like a luxurious Formula 1 racing car. That's a loan, with well-defined characteristics and clear purposes.

• Residential Loan: Means "I like it, I'll take it," but you'll have years to pay it off.

• Vehicle Loan: Drive in style, even if you have to share the seat with your budget.

What is credit

If a loan is your serious relationship, credit is your friend with benefits. You use what you need and leave the rest for another day, like an all-you-can-eat buffet for your wallet. But be careful, don't overdo it.

Credit is a pre-approved amount of money that a financial institution makes available to you. You can use all or part of that money, paying only the interest on the amount used. Ideal for when uncertainty is your middle name, a bit like in the cryptocurrency market.

Main Characteristics

• Flexibility: Use only what you need. Like Tetris, it fits perfectly with your needs.

• Variable Interest: A roller coaster that is sometimes friendly, sometimes not so much.

• Open Line: Continuous access to your money without having to start a new process.

Common Examples

With credit, you can acquire new equipment as if you were a professional gamer or manage your business expenses without stress. All in the service of the trader you sometimes carry within.

• Credit Card: Ideal for those hated and unforeseen expenses, or for an opportunistic investment. Warren Buffett carries it (or so we want to believe).

• Personal or business line of credit: Because you never know when the opportunity will be better than your own shadow.

Which to Choose Based on Your Needs

Now, with a loan on one side and credit on the other, how do you decide which financial path to follow? It’s like standing at two paths in a forest: One, firm and predictable, the other, full of surprises to discover.

For Defined Goals

• Loan: If your goal is fixed, like finishing university or building your startup from scratch, follow the safe path.

For Flexibility and Emergencies

• Credit: If chaos is just around the corner, this is your pass to run into its arms or backtrack before it's too late.

Evaluating Risks and Rewards

Remember Benjamin Franklin’s wise advice: "By failing to prepare, you are preparing to fail." In trading and finance, often choosing the right instrument can determine your success or downfall.

Evaluate risks as if it were your last decision in a chess game. One wrong move in trading and you could lose more than just a few nights of sleep.

Finally, using a pencil and paper to outline your financial goals and risk tolerance can be as classic as effective on the road to victory. Because, in the end, those who venture wisely seldom regret it.