Major Differences between a Term loan and Demand loan
A loan is money that one borrows with a specific purpose at a certain rate of interest. It has to be repaid in the future within a specific tenure. There are many different types of loans but the 2 most popular types are term loans and demand loans.
Get an insight into the meaning of term loan:
- A term loan is a loan of a specific amount that the financial institution gives at a fixed or floating rate of interest.
- The term loan has to be repaid by the borrower within a specific time frame.
- Borrowers usually avail of term loans for business purposes. That is either to start a new business or to expand an existing business.
- The term loan tenure can range from a few months to 30 years.
- The repayment of the term loan is done in Equated Monthly Instalments that is EMI
Now check the benefits of a term loan:
- The sanction of the term loan is done in the case of people who are making a huge investment. This investment can be for business expansion or to buy land or to buy large equipment etc.
- There is a fixed repayment schedule in the case of a term loan. So, if the borrower decided to repay the loan before the repayment schedule then he has to bear a penalty for early repayment of the loan.
- In the case of term loans collateral may or may not be required. A personal loan is an unsecured term loan where no collateral is needed. But the gold loan is a secured term loan where the collateral is given to the financial institution.
- One can get short-term, intermediate-term, and long-term loans. The tenure of short-term loans is between 12 to 18 months. The tenure of intermediate loans can be around 84 months. The repayment tenure of long-term loans where a large amount is given as a loan can be 30 years. In the case of long-term loans usually collateral has to be given to the financial institution.
Get an insight into the meaning of demand loans
- A demand loan which is also known as Working Capital Loan is a loan that has to be repaid on the demand of the financier.
- This loan is suitable if you have some short-term business requirements. There is no repayment schedule for demand loans and the same may have to be paid even at a short notice.
- The borrower can repay the demand loan even before the lender demands the loan and no penalty is imposed in the early repayment of demand loans.
Now check the benefits demand loan
- Demand loans are secured loans where the borrower has to give collateral.
- You can opt for demand loans if you have some short-term business needs like buying raw materials, paying office rent, or buying cars or farm animals, etc.
- The demand loan tenure is short and it is decided by the lender.
- Some lenders may allow the borrower to pay interest only on the percentage of the loan used.
- The lender can demand the repayment of the demand loan before the decided date. The borrower can also repay the loan before the decided date and he does not have to give any early repayment penalty for the same.
Now let us compare term loans and demand loans:
| TERM LOAN | DEMAND LOAN |
| This loan is for those who need large capital for buying land or office space or equipment | This loan is for those who have a short-term business need like buying raw materials or paying rent. |
| The loan amount of term loans is higher than demand loans | The loan amount of demand loan is less than that of term loan |
| In the case of a term, loan collateral may or may not be needed. It depends on the type of term loan that the borrower opts for. | In the case of demand loan collateral is a must. |
| The repayment tenure of a term loan is long and it can be in the range of a few months to 30 years | The repayment tenure of demand loans is short. The lender can demand the amount at a short notice. The borrower can also repay the loan before the decided date. |
| The borrower has to bear an early repayment penalty if he repays the loan amount before the decided tenure | The borrower does not have to bear any early repayment penalty if he repays the loan amount before the decided date. |
| In the case of term loans fixed or floating rate of interest is applicable | In the case of demand loans, some lenders may allow the borrower to pay interest only on the percentage of the loan amount used. |
So what type of loan should you choose? term loan or demand loan?
The type of loan that you choose depends completely on your specific requirement. If you require some money immediately to pay the office rent or pay the salary of your employees or buy farm animals then you can go for a demand loan. But you have to be prepared to give collateral to get the demand loan and if the lender demands the money before the decided date then you have to be willing to pay the same.
If you need a large capital to invest in your business or to buy expensive equipment etc. then you have to opt for a term loan. Term loans are secured as well as unsecured term loans. Secured term loans collateral is needed but in the case of unsecured term loans, no collateral is required. There is a fixed repayment schedule for term loans.
For unsecured term loans connect with Money View:
A personal loan is a type of unsecured term loan where you do not have to give any collateral. If you are keen to take a personal loan at the earliest then connect with the financial advisors of Money View.
This company offers personal loans to eligible candidates with minimal documentation. All that you have to do is check if you are eligible for the Money View personal loan online. Eligible people can then apply for a personal loan online using the Money View loan app or website.