Distinction Between Overdraft and Loan

Distinction Between Overdraft and Loan 

 HSC Board of  Maharashtra State Board  – class 12th – Organization of Commerce and management – Studies notes, study material, distinguish between, difference between Overdraft and Loan , study material, study notes, study perpetration.

Sr.NoPoint of DistinctionOverdraftLoan
1.MeaningIt is an arrangement under which the current account holder is allowed to overdraw from the account.It is an arrangement under which a certain amount is advanced for a certain fixed period.
2.EligibilityOnly current account holders can get overdraft facility.Any account holder i.e. current, saving, fixed deposit can get a loan.
3.DurationIt is for a short periodIt is for a long period
4.SecurityOverdraft is sanctioned against hypothecation of stock.Some valuable assets are to be given as security.
5.RepaymentAmount of overdraft is adjusted against the deposits in the current account.Amount of loan is to be repaid in installments or in lump sum on the due date.
6.PurposeThe purpose is to meet short term working capital requirements.The purpose is to meet long term requirements.
7.Separate accountNo separate account is required.Separate account is to be maintained.
8.AmountAmount of overdraft is smaller.Amount of loan is larger.
9.Interest chargedInterest is charged on the amount actually withdrawn. Interest is charged on the amount of loan sanctioned, whether withdrawn or not.
10.Rate of InterestIt is higher than that of loans.It is lower than that of overdraft.

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