What is Demand Loan?
Demand Loan also termed as Working Capital Demand Loan which will be repaid as instructed by the lenders for the repayment. This loan is provided to the borrower for the shorter duration. The borrower can repay the amount at any time without giving any pre-payment charges. Demand loan doesn’t have any fixed tenure and fixed installment to repay the loan amount.
Purpose of Demand Loan
An individual or business entity may need demand loans for the various short term purpose. The very common purpose for seeking demand loan are as follows:
- Company needs to pay salaries and wages on a urgent basis
- For Bridge Finance to continue important work
- For the purpose of Investment loans
- For short term funding for new business
- Company needs to purchase raw materials urgently
- Paying office rent
- Purchasing some Non-current assets which value is not so high
- Business needs urgent funds to start-up the business
- To meet daily and temporary working capital requirements
- Any other short term purpose.
Features and Benefits of Demand Loan
There are some benefits of demand loan which are enumerated as follows:
- Demand loans are secured against collateral
- Interest will be paid on the used amount only
- Borrower’s need not be worried for long term EMI’s
- Borrower can make a small payment until the full payment is made
- Amount of Loan or Tenure of loan are fixed by the lender with the consultation of borrower
- Loan tenor shall not be less than seven days
Difference between Demand Loan and Term Loan
The differences between demand loan and term loan are mentioned as follows:
| Subject | Demand Loan | Term Loan |
| Purpose | Demand loan is needed for the purpose of working capital finance to procure small machinery, raw materials purchase and short term liabilities. | Terms loan are basically granted for starting a new business or expansion of existing business, purchase of land, machinery & equipment for setting up a new business. |
| Tenure | Usually for very short term, minimum 7 days to few months. | Mostly for 3 years to 20 years. |
| Repayment | Borrower may re-pay the the borrowed amount anytime when they have surplus amount. But they are obliged to re-pay the entire amount when the lender demand. | Terms loan have a specific repayment terms with fixed installment facilities. Interest is charged on the principle amount |
| Interst | Interest is charged on uses fund. | Interest is charged on the whole amount as sanctioned by the lenders as a loan. |
| Security | Some kind of security may be required such as stocks, machinery etc. | Mortgage of land, building or any other immovable fixed assets is mandatory for getting the loan amount. |
| Penalty | Penalty is not common in demand loan. | For term loan penalty is charged for delay payment. |
Questionnaire of Demand Loan
Ques. 1: I have confusion on term loan and demand loan? What the basic difference between two?
Answer : Demand Loan and Term Loan are totally different. Term loan are used for a long term where Demand loan is for the short tenure for a specific purpose.
Quest.2: Is Collateral is required for Demand Loan?
Answer : Like Term Loan, demand loan are also subjected collateral. Lenders always want to secure the fund.
Ques.3 Can I repay my demand loan in installments?
Answer : Installment facility is not applicable in Demand loan. The borrower can repay the amount at any time in part or in full. But, if the lender wants entire amount, the borrower is obliged to pay.
Ques.5: Why should one choose Demand Loan?
Answer : Demand loan is needed for short term fund requirement and short term payments. It has no installment burden issues.
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