In everyday life, have you ever heard the terms credit, loan, or financing?

Generally, people who apply for credit or financing need funds for business capital or personal consumption. So, what’s the difference between the two?

In short, credit is a financial facility that allows an individual or business to borrow money to purchase products and repay it within an agreed period, with interest charged. According to the Banking Law, credit is the provision of money or claims equivalent to money, based on an agreement or loan contract between a bank and another party, obligating the borrower to repay the debt after a certain period along with interest.

Credit is offered by conventional commercial banks, rural banks (BPR), and pawnshops.

On the other hand, financing refers to funding support for the acquisition of certain goods, assets, or services, usually involving three parties: the fund provider, the supplier of the goods/assets/services, and the user of those goods/assets/services.

Financing products are provided by Islamic commercial banks, Islamic banking units, Islamic rural banks (BPRS), and finance companies. However, some financing mechanisms involve only two parties, such as gold financing by Islamic banks or BPR Syariah, and sale-and-lease-back financing.

Source : Otoritas Jasa Keuangan