Explain the different ways in which commercial banks advance loans to the public.
Loans can be granted in the form of cash credit, demand loans,
short- term loan, overdraft, discounting of bills, etc.
1)Cash credit: Under the cash credit system, the borrower is
sanctioned a credit limit up to which he can borrow from the bank. The interest
payable by the borrower is calculated on the amount of credit limit actually
drawn.
2)Demand loans: Demand loans granted by a bank are those
loans that can be recalled on demand by the bank at any time. Short-term loans
(like car loans, housing loans, etc.) are given as personal loans against some
security. The interest is payable on the entire sum of loans granted.
3)Overdraft: In
case of overdraft facility, an account holder is allowed to withdraw a sum of
money in excess of the amount deposited with the bank. Here, the borrower who has received this
facility has to pay interest on the amount overdrawn.
4)Discounting of bills :. A
bill of exchange is drawn by a creditor on the debtor specifying the amount of
debt and also the date when it becomes payable. Such bills of exchange are
normally issued for a period of 90 months.
Loans can be granted in the form of cash credit, demand loans, short- term loan, overdraft, discounting of bills, etc.
1)Cash credit: Under the cash credit system, the borrower is sanctioned a credit limit up to which he can borrow from the bank. The interest payable by the borrower is calculated on the amount of credit limit actually drawn.
2)Demand loans: Demand loans granted by a bank are those loans that can be recalled on demand by the bank at any time. Short-term loans (like car loans, housing loans, etc.) are given as personal loans against some security. The interest is payable on the entire sum of loans granted.
3)Overdraft: In case of overdraft facility, an account holder is allowed to withdraw a sum of money in excess of the amount deposited with the bank. Here, the borrower who has received this facility has to pay interest on the amount overdrawn.
4)Discounting of bills :. A bill of exchange is drawn by a creditor on the debtor specifying the amount of debt and also the date when it becomes payable. Such bills of exchange are normally issued for a period of 90 months.
