‘’When all doors are closed, God open windows for us’’ and loans are one of those windows, which can be accessed in hard times. Money plays an important role in all of us life; eventually we could not imagine our life without money.
How hard it would be to manage everything, right from basic needs like food, education, house, and clothes to luxurious amenities like infrastructure, personal vehicle etc. It is true that due to insufficient money, many of us get deprived of all these facilities; now, here comes the window that we were talking about ‘loans’. In time of emergency or in lack of money, you could get loan to fulfil your need from banks or personal lender.
Demand Loan vs Term loan
There are two categories of loan to choose from, secured and unsecured and further there are many sub categories like personal loan, credit card loan, demand loan, term loan etc.
So today we are going to tell you the difference between demand loans and term loans.
• Basic Difference
Term loans are basically those traditional loans like personal loans which have fixed interest rate, maturity date and may or may not need collateral to get sanctioned. It is much reliable and secure loan.
Demand loan, as the name suggests is very short term loan which do not have fixed date of repayment, also has floating interest rates and lending institution can demand for the repayment any time they want.
• Time Tenure
Term loans are for very longer period of time range from 1 to 20 years and mainly borrowed by individuals after much evaluation of the assets and income.
Demand loans are for very shorter period, which may range from few days to several months, mainly borrowed by business groups.
• Mode of Repayment
Term loans have pre-planned repayment i.e. it has certain maturity dates and also has fixed instalment. Interest rates are charged on the amount of principal taken. In case of default, you could get imposed with penalty, as a result have to pay more than the fixed amount.
Demand loans have very open-ended repayment feature. The repayment is completely based on the relationship between lender and borrower. It could be repaid at the time when borrower could afford to do but, lender has the authority to demand the repayment of full amount anytime.
• Interest Charged
Interest is charged on total amount of loan sanctioned in the case of term loan.
In demand loans, interest is charged only on the amount used, not on the whole actual principal.
Through this article, reader could easily find the difference between term loan and demand loan. Individual should keep in mind the various factors like time period, the amount, interest charged and liquidity factor before choosing any loan category.