We know that a loan is an amount of money that is borrowed for a particular purpose at an interest rate with the commitment to pay it back later. Lending institutions provide entrepreneurs with business loans at competitive rates to start or grow a firm. But if you have applied for a loan, you must be knowing about demand loan vs term loan. If not, I’ll help you understand it.
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Two common loans on the market nowadays are demand loans and term loans. Both offer a variety of features and advantages, and the consumer can select one based on their needs. But first, it's important to comprehend how these two loan types differ from one another.
| Feature | Demand Loan | Term Loan |
Collateral |
Required |
Depending on the loan, it might or might not be necessary. |
Repayment Term |
Shorter duration (days to months) |
Longer repayment term (months to years) |
Repayment Flexibility |
Borrowers are not penalised for repaying early. |
A penalty may apply if you repay early in the payback term. |
Capital |
The loan amount is lower as compared to Term Loans |
The loan amount is higher as compared to Demand Loans |
Purpose |
Short-term business needs, such as buying working capital, buying supplies, paying employees and rent, etc. |
Large capital expenditures, such as the acquisition of property, pricey machinery, leasing office or commercial space, etc. |
Demand loan vs term loan differences
After going over some of the key characteristics and advantages of demand loans and term loans, let's examine their contrasts. -
Demand loans are typically used for short-term company needs and as a result, have a lower loan amount, while term loans are suitable for both short-term and long-term business expenses, and the loan size fluctuates according to the requirement.
Demand loans have a shorter repayment time compared to term loans, which can range from a few months to around 30 years.
Borrowers are not penalised for repaying their loans earlier than the expiration of the repayment period. This isn't the situation with term loans when payments are paid via EMIs, although early loan repayment may incur fees.
Demand loans must be secured by collateral; in contrast, term loans may be secured or unsecured, depending on the kind of loan taken out.
I hope I was able to help you with understanding d
emand loan vs term loan.
Read More: What is Demand Loan Example? What is a Short-Term Loan and its Types?Your Feedback Matters! How was this Answer?
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Authors Of The Question
Difference Between Term Loan and Demand Loan?
Amir Sheikh
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1 Answers
2 Year
2022-11-14T11:29:38+00:00 2022-11-14T11:29:39+00:00Comment
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