Difference between Term Loan and Demand Loan

Loan in simple words refers to taking the money now and paying back that money later with interest to the borrower. It can be of many types, term and demand loans are two of its variants, let’s look at some of the differences between term and demand loan –

  1. Term loan refers to those which have a fixed tenure and it has to be repaid by the borrower on fixed maturity date and also they have fixed repayment schedule whereas demand loan as the name suggests are those which can demanded by the bank or financial institution anytime and the borrower has to repay it within short period of time which may range from 1 to 7 days depending on the policy of the bank which has given the loan.
  2. Term loan is for a long period of time which may range from 1 year to 20 years whereas demand loan is for short period of time. Hence people who require funds for long period will go for term loan and those who require funds for short period of time will go for demand loan.
  3. Vehicle loan, educational loan, housing loan are some of the examples of term loan while loan against fixed deposit, overdraft facility are some of the examples of demand loan.
  4. In case of term loans there is prepayment penalty implying that if you pay off your entire loan before repayment date then bank or financial institution will impose penalty whereas in case of demand loan there is no such prepayment penalty.
  5. In case of term loan interest is charged on the total amount sanctioned for the loan whereas in case of demand loan interest is charged only on the amount utilized and not on total amount sanctioned, so for example if an individual has taken $5000 but he or she has utilized only $2000 then interest in case of demand loan will be charged on $2000 whereas in case of term loan interest will be charged on $5000.

As one can see from the above that there are many differences between the two and individual should keep in mind his or her requirement, time period for which debt is required and also liquidity factor before taking term or demand loan.

1 comment… add one
  • vignesh

    Really helpfull. Thanks.

Leave a Comment


Related pages


private venture capital advantages and disadvantageswhat is factoring in financial managementvertical analysis in accountingdifference between capitalist economy and socialist economyadvantages of merger and acquisition pdfstrengths and weaknesses of traditional economyprepaid insurance journal entry adjustmentswhat is bartering systemassets vs liabilities definitionconvenience goods marketingdefine dupont analysisexamples of inferior goods and normal goodspreference shares advantages and disadvantagesfeatures of sole proprietorshipperpetual succession meaningmixed capitalism definitionmarket capitalization of icici bankecs system in bankdefine law of diminishing marginal utilityjoint venture disadvantageswhat is a horizontal monopolyimplicit explicit costindirect quotes examplesfifo method advantagesdefine traditional economyexamples of physical assetscumulative convertible preference sharesadvantages of monopolistic competitionwhat are the disadvantages of international tradeadvantages and disadvantages of central governmentconglomerate integration definitionmergers and acquisitions advantages and disadvantagestutor2u perfect competitionvarious types of elasticity of demandadvantages of swotconvertible and non convertible preference sharesskimming the marketdisadvantages of socialist economynormal goods examplesprofitability ratios formulafluctuation defadvantages of planned economyskimming vs penetration pricingsystematic risk and unsystematic riskexamples of cash inflowsdisadvantage of jitdistinction between shares and debenturesloans advantages and disadvantagesdifference between cheque and draftcrossed chequesderivatives market pptmeaning of forward ratecommercial paper pptunclaimed dividendswhere is unearned revenue recordedexamples of products with elastic demandhorizontal communication flowwhat is the difference between direct cost and indirect costadvantages and disadvantages of pricingformula for operating profit ratiounitary elastic demandexamples of veblen goodswhat is the meaning of accrued interestdeflation refers to a situation wherefmcg long formjournal entry for debtorsdisadvantage of payback periodwhat is the difference between demat account and trading accountdefine junk bondsexamples of substitutes in economicsdifference between bank rate and msfreducing balance method of depreciationstudent loan disadvantagesbenefits of privatisationwithdrawal slip in bank