Question

Answer the following question.
Explain different types of loans and advances provided by commercial banks?

Answer 1

There are mainly two types of loans and advances provided by commercial banks:

1. Unsecured loans : These loans does not require any collateral in the form of security. It includes:

(a) Call loans: Call loans refers to loans that the lender can demand to be repaid at any time and does not require monthly or quarterly payments. The rate of interest in case of call money is known as call loan rate which is the lowest among all other loans.

(b) Short term loans: Short term loans refers to loans that runs for 1 to 12 months and does not requires monthly or quarterly payments.The rate of interest charged on short term loans is more than what is charged in call money.

(c) Medium term loans: Medium term loans refers to loans that runs for one to 3 years and requires monthly or quarterly payments.The rate of interest charged on medium term loans is more than what is charged in short term loans.

2. Secured loans: These loans require collateral in the form of security to raise it. It includes long term loans which refers to loans that runs for 3 to 25 years which needs some collateral and requires monthly or quarterly payments.The rate of interest charged on long term loans is the highest in comparison to any other type of loan.