While loan means to borrow money from a lender against any security or asset, this term is disbursed for specific purposes. The loan has two variants, demand loan and term loan. Let’s find out the difference between the two: The term loan is referred to a loan with a fixed tenure and it must be repaid on the fixed maturity date by the borrower. On the other hand, the demand loan can be demanded by the borrower from a bank or any financial institution. It has to be paid within a short duration of just one to seven days. The term loan is acquired for a long duration from one year to 20 years, so won’t have any effect on the working capital. But the demand loan is for a short time and may affect the working capital for a small period.
Examples of term loan are education loan, vehicle loan and housing loan. The examples of demand loan are overdraft facility and loan against a fixed deposit. In case of term loan default, a prepayment penalty is implied on the borrower to pay the entire loan amount before repayment date. But there is no such prepayment penalty on the demand loan. Read Also: What are the Actual Differences Between a Demand Loan and a Term Loan?
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AuthorAman Khanna is an experienced financial advisor who is well known for his ability to foretell the market trends as well as for his financial astuteness. He has an MBA in finance from Toronto University as well as years of experience delivering seminars on sound financial practices and debt management. |