Distinguish between the following:

Loan & Overdraft

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Solution

Basis of Difference Loan Overdraft

Meaning In the case of loan, a certain amount is advanced for a specific purpose and a specific period. It is a facility given to a current account holder to withdraw amount more than what he/she has in his/her account.

Eligibility Any account holder can get a loan from a bank. Only current account holders can enjoy this facility.

Rate of interest Comparatively low interest rate is charged. A high interest rate is charged.

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

Amount The amount given as a loan is high. The amount of an overdraft is comparatively smaller.

Separate account Separate account is required. Separate account is not required.

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