Loans Overdraft

Sr.
No.
Basis of Difference

Loans

Overdraft

1.
Meaning
It is an arrangement under which a certain amount is advanced for a certain fixed period.
It is an arrangement under which the current account holder is allowed to overdraw from the account.

2.
Eligibility
Any account holder i.e. current, saving, fixed deposit can get a loan.
Only current account holders can get overdraft facility.

3.
Rate of Interest
It is lower than that of overdraft.
It is higher than that of loans.

4.
Duration
It is for a long period.
It is for a short period.

5.

Interest charged
Interest is charged on the amount of loan sanctioned, whether withdrawn or not.
Interest is charged on the amount actually withdrawn.

6.
Amount
Amount of loan is larger.
Amount of overdraft is smaller.

7.
Separate account
Separate account is to be maintained.
No separate account is required.

8.
Purpose
The purpose is to meet long term requirements.
The purpose is to meet short term working capital requirements.

9.
Repayment
Amount of loan is to be repaid in installments or in lump sum on the due date.
Amount of overdraft is adjusted against the deposits in the current account.

10.
Security
Some valuable assets are to be given as security.
Overdraft is sanctioned against hypothecation of stock.