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.No | Point of Distinction | Overdraft | Loan |
| 1. | Meaning | It 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. | Eligibility | Only current account holders can get overdraft facility. | Any account holder i.e. current, saving, fixed deposit can get a loan. |
| 3. | Duration | It is for a short period | It is for a long period |
| 4. | Security | Overdraft is sanctioned against hypothecation of stock. | Some valuable assets are to be given as security. |
| 5. | Repayment | Amount 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. | Purpose | The purpose is to meet short term working capital requirements. | The purpose is to meet long term requirements. |
| 7. | Separate account | No separate account is required. | Separate account is to be maintained. |
| 8. | Amount | Amount of overdraft is smaller. | Amount of loan is larger. |
| 9. | Interest charged | Interest is charged on the amount actually withdrawn. | Interest is charged on the amount of loan sanctioned, whether withdrawn or not. |
| 10. | Rate of Interest | It is higher than that of loans. | It is lower than that of overdraft. |