What is the Difference Between Loan and Advance?

The difference between advance and loan is as follows:

• Loans are typically used for specific purposes, such as buying a home, car, or funding business needs.

• Loans usually have a longer repayment period, ranging from months to years.

• Interest rates on loans are often fixed or floating and are set by the lender based on creditworthiness and market conditions.

• Loans are repaid in regular installments (EMIs), including principal and interest.

• Loans require extensive documentation, including proof of income, credit history, and collateral (in case of secured loans).

• Advances are generally short-term funds provided to meet immediate, often unforeseen, financial needs. Examples include salary advances or advances against future sales.

• Advances have shorter repayment periods, usually up to a few months.

• Advances may come with lower or no interest compared to loans, depending on the terms set by the employer or lender.

• Advances are typically repaid in a lump sum or deducted from future payments, such as salaries or sales proceeds.

• Advances require less documentation, often only basic proof of employment or business activity.

Basic Loans and Advances Difference

• Loans have longer terms; advances are short-term.

• Loans are for specific, often significant expenses; advances cover immediate, short-term needs.

• Loans have structured interest rates; advances might have lower or no interest.

• Loans are repaid in installments; advances are usually repaid in a lump sum or deducted from future earnings.

This is all about the loans vs advances difference.

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My father retired last year so now we are planning to start a garment business but we do not have that many funds. I asked my father to visit the bank and know details before availing a loan but he was more interested in considering an advance. I wasn’t much aware of the

difference between loans and advances so had to sit with him to know about them. I am sure many of you have the same query so let me explain these things in brief.

A loan is a debt that a bank or financial institution provides to a person on some terms, like interest, monthly payable amount etc  for a particular time.

An advance on the other hand is a fund that the banks provide to mainly businesses who aim to flourish in the market but the borrower needs to pay the amount within a year.

In simple terms let me tell you

what is the difference between loan and advance. The main point of difference is that a loan is usually more than a year but advances are less than even a year. Other differences are as follows:

The

difference between loans and advances is clear to me now and I hope for you as well.