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Question
What is the difference between a loan and an overdraft?
Distinguish Between
Solution
| S. No. | Basis | Loan | Overdraft |
| 1. | Meaning | A loan is a specified sum of money borrowed from a bank or financial organisation, usually for a specific purpose, and repaid in installments with interest over a fixed period. | An overdraft is a bank-provided service that allows the account holder to withdraw more money than is available in their account up to a certain limit. |
| 2. | Tenure | Has a set tenure (e.g., one year, five years, etc.). | There is no fixed tenure; it is determined by the deal with the bank. |
| 3. | Interest | Interest is charged on the entire loan balance from the beginning. | Interest is charged only on the amount overdrawn, not the entire limit. |
| 4. | Amount Limit | The amount is set and determined at the time of loan approval. | The overdraft limit is set, however, the user can withdraw any amount within it. |
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Commercial Banks: Functions
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