Term Loan

A term loan is a loan that can be paid back to the lender over a fixed period. The interest rate will be charged or fixed which depends on the market fluctuation basically. To process this term loan you need minimum documents and the entire process is hassle-free.


Documentation Required

  1. A copy of your Business Registration
  2. The Applicant’s and the Company’s KYC’s
  3. For the last nine months, a Bank Statement
  4. Promoter’s PAN Card
  5. Promoter’s Aadhaar Card

Benefits of Term Loans

Drawbacks of Term Loan

Overdraft Loan

Overdraft Loan is a facility in which the current account holders with the bank can withdraw more than the effective credit balance in their current account. The interest rate on overdraft facilities charged only on the amount withdrawn by the user. This overdraft facility is also commonly known as a credit line facility.

Overdraft – Advantages

Overdraft – Disadvantages

Differences between Loan and Overdraft

1MeaningThe loan refers to the fixed amount of money borrowed for a specified period, against a guarantee, which should be repaid with interest.Overdraft is an arrangement whereby the customer is authorized to withdraw an amount greater than the balance shown as a credit in the current account, but only up to a certain limit.
2Security or CollateralIn the case of overdraft facilities, no security or collateral is required.Term loan can be both secured and unsecured.
3What is it?Borrowed capitalCredit facility
4ProcessAn overdraft facility can be availed easily, as it does not require much paperwork and the amount is readily available. It is a one-time process.In the case of a term loan, minimal documentation is required and disbursal is easy.
5Source ofLong-term fundsShort-term funds
6Purposes1. Buying an Machinery
2. Construction
3. Hiring new Staff
4. Paying old Debts
1. Wages
2. Bill Payments
7InterestCharged on loan sanctioned.Charged on amount overdrawn.
8Calculation of interestMonthly basisDaily basis
9Credit FacilityThis is a credit facility offered by financial institutions having different terms and conditions on which interest is charged.  The same is the case with term loans
10RepaymentEither on demand or on fixed monthly installments.Through deposits in the bank account.
11Is bank account Mandatory to avail benefit from this service?No, it is not compulsory.Yes, he / she must have a current account in the respective bank.
12Interest Rate CalculationInterest rate is calculated on Monthly BasisInterest rate is calculated on Daily Basis
13Current AccountIt is not mandatory to have current accountMandatory to have current account
14LimitHere, different credit limits are assigned to different customers, and any required amount can be withdrawn within the limit.In the case of a term loan, the amount cannot be modified, and the customer can avail only the sanctioned amount. 

Which is preferable?

The answer to this question may vary depending on the particular situation and company requirements. In certain cases, an overdraft might satisfy the requirements; in these cases, there’s no need to apply for a term loan because they entail a sizable sum that could become a burden. On the other hand, some costs and requirements can only be met through a term loan. For instance, if a company wants to expand, buy land, or buy machinery, it might use a term loan because the costs are high and the repayment time is set.

Overdraft loans are frequently praised as being safe and simple to get, and they are seen to be a better option for handling modest and temporary needs, such as marketing and advertising costs, salaries, rent, taxes, or other running costs, which typically last for 15 days to six months. Look for overdrafts that have lower interest rates and fees and that have more flexible repayment and borrowing alternatives. Loans are frequently thought of as planned emergency finances, whilst overdrafts are thought of as emergency ones.

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