Demand Loan Vs Term Loan

Demand Loans and Term Loans are two popular loans available in the market today. Both have varied features and benefits and can be chosen based on the customer’s requirements. But before that, it is essential to understand the differences between these two types of loans.

Feature Demand Loan Term Loan
Collateral Required May or may not be required depending on the loan
Repayment Term Shorter duration (days to months) Longer repayment term (months to years)
Repayment Flexibility Borrowers can repay before the term without penalty Repaying before the end of the repayment term can result in a penalty
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 requirements such as purchasing working capital, raw materials, paying staff/rent, etc. Large capital requirements such as the purchase of land, expensive equipment, buying office/business space, etc.

Difference Between Demand Loans and Term Loans

Now that we have gone through some of the salient features and benefits of Demand loans and Term loans, let us take a look at their differences -

  • Demand loans are generally availed for short term business expenses and as such come with a lower amount of loan whereas term loans can be used for both short term and long term business expenses and the loan amount varies depending on the requirement
  • Demand loans offer shorter repayment terms whereas term loans have a repayment period that can vary from a few months to about 30 years
  • Borrowers are allowed to repay their loans even before the end of the repayment period without having to pay a fine. This is not the case with term loans wherein repayments are made through EMIs but closing the loan in advance can result in a penalty
  • Demand loans are secured loans, i.e., require collateral whereas term loans can be both secured and unsecured depending on the type of loan being availed

What is a Demand Loan

A demand loan, sometimes also called a Working Capital Demand Loan or WCDL is a type of loan wherein the repayment term is not fixed but is generally on the shorter side and is usually provided for short-term business necessities. The lender can demand payment even at a short notice but the borrower, if he/she wishes to, can also repay the same earlier than the due date without having to worry about penalties.

Features and Benefits of Demand Loans

Some of the salient features and benefits of demand loans are as follows:

What is a Term Loan?

Term loans on the other hand are provided by financial institutions for both short-term and long-term and can have either fixed or floating rates of interest. The tenure generally ranges from a few months to about 30 years. The amount, in this case, is repaid through EMI or Equated Monthly Installments and is generally availed for business purposes. Term loans are generally best suited for long-term investments that are capital intensive. However, there are different types of term loans available for various purposes.

Features and Benefits of Term Loans

Given below are the salient features and benefits of term loans:

Conclusion

There are multiple loans in the market today and demand loans and term loans are two popular choices. As borrowers, you will have to avail of the loan that is most suited for your situation. Ensure that you check all the terms and conditions thoroughly before availing of a loan.

If you are looking for a personal loan (term loan) that is unsecured, disbursed within 24 hours, and comes with competitive interest rates, apply for a Money View loan today

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