Types of Loans

Banking Awareness

Types of Loans

• Cash Credit
  The debtor is allowed to withdraw a certain amount on a given security. The debtor withdraws the amount within this limit, as per his requirement and also repays it. Interest is charged by the bank on the amount actually withdrawn.



• Overdraft
  Clients who have current account with the bank get the sanction to withdraw more money than is lying in the said account . It is called overdraft. This facility is available for short-term to reliable parties.



• Loans and Advances
  These loans are given in the form of a fixed amount. Bank enters the amount of loan in the account books of the debtor. The latter can withdraw it any time. The interest is chargeable on the whole amount from the day, the loan is sanctioned irrespective of the fact that the debtor withdraws the whole amount or part of it.



• Discounting of the Bill of Exchange
  Under this, banks give advance to their clients on the basis of their bills of exchange before the maturity of such bills. A deduction is made out of the face value of the bill for the period the bill is yet to run. This deduction is called discounting of the bill.



• Investment in Government Securities
  Purchasing of government securities by the banks tantamounts to advancing loans by them to the government. Banks prefer to buy government securities as these are considered to be the safest investment.