As you well know, banks offer different types of accounts to better adapt to the needs of people. Of course, always complying with certain requirements determined by the bank. In this article we will talk specifically about the credit account. This is going very well for the self-employed and entrepreneurs, as it allows them to access money to be able to make certain payments arising from unforeseen events.
If you are thinking of opening a credit account, I recommend that you continue reading. We will explain what this type of account is, what it is used for, what its advantages and disadvantages are, and how it differs from a loan. I hope this information is useful to you.
What is a credit account?
Before going into more detail, let's first answer the big question: What is a credit account? Well, it is a type of bank account that allows the self-employed or the company in question receive a certain amount of money to be able to face various payments related to commercial activities. This amount is previously agreed with the bank.
The main objective of this agreement between the bank and the entity in question is that the latter is capable of resolving any liquidity problems it may have as soon as possible, either due to lack of income for a period or due to economic unforeseen events, which may endanger the financial structure of said company.
Interest and commissions
Of course, banks do not offer this type of account without asking for anything in return. To keep them You have to pay various interests and also commissions. We are going to comment first on the types of interest associated with credit accounts:
- Creditor interests: Credit interest is applied in cases where the account in question has a positive balance. In other words: It is what you have to pay if you use more money than previously agreed.
- Debtor interest: This type of interest is applied for using the money borrowed by the banking entity according to the time of disposition.
Apart from the interests that we have just mentioned, you also have to pay commissions related to credit accounts, and these they can be quite high. Usually, banks charge the following:
- Opening commission: In general, the opening commission usually ranges between 0,25% and 2% of the maximum limit agreed with the bank.
- Availability commission: This is the percentage applied to the money that can be disposed of when it is time to settle the interest. In other words: It is the amount that the bank charges for giving the exclusivity of the use of the requested amount. During that time, that money cannot be used by anyone else. Generally, this commission is below 0,1%.
- Commission for the excess balance: Not all banks charge this fee, but some do. It is convenient to inform yourself beforehand and read all the conditions well.
What is the credit account used for?
As we have already mentioned before, the credit account is very useful for the self-employed and companies to have money available when facing unforeseen expenses or initial expenses, that is, expenses that they have before receiving income. The operation of this type of account is very simple: The bank grants an agreed amount of money to the client, who are usually self-employed or companies. Obviously, the client has to return that money within stipulated periods. Usually, the term is usually between six months and one year.
Thinking about it, the credit account is a lot like a checking account, as long as its balance stays positive. As with the current account, also with the credit card you can domicile income or receipts, make transfers, and other frequent operations.
Advantages and disadvantages
Next we are going to talk about a key topic of the credit account: Its advantages and disadvantages. Of course its greatest point in favor is that the company can have money to cover urgent and unforeseen expenses, as it could be for example a reform. But apart from this great advantage, there are others that we must highlight:
- Greater flexibility regarding interest and settlement terms.
- Minimum risk of non-payment to workers.
- More likely to pay suppliers and avoid debt.
- Basic operation: It looks like a checking account. Through this type of account you can also manage daily expenses of the company.
However, a credit account also has a number of drawbacks What should we consider:
- It is much more complicated to open this type of account than a checking account, for example.
- You must prove that you have financial solvency high enough to cover expenses. For this reason, newly created companies or companies that have had negative numbers for several years have it quite difficult to get a credit account.
- this type of account It is not indicated for those people who are short-sighted (We must not forget that they charge an availability commission, that is, they charge only because that amount of money is available for that specific person).
What is the difference between a credit and a loan?
It is normal for many people to think that a credit and a loan are the same, but this is not really the case. The main difference between these two concepts is the destination of the money. Usually, the money obtained through a loan is used to buy an asset, such as a house or a car, while a credit account is used to cover general expenses belonging to a company. It should also be noted that the money is received in one go if a loan is requested. On the other hand, in a credit account we do not have to receive everything at once.
As you can see, a credit account is a good option for companies and freelancers. So if we are thinking of setting up a company, it is worth requesting information about the conditions of this type of account from different banks.