Question

Distinguish between the following:

Loan and overdraft

Distinguish between overdraft and loan.

Answer 1

Loan	Overdraft
Any account holder (i.e., current, savings or fixed deposit), or any other person can get a loan facility.	Only current account holders are eligible for an overdraft facility.
Bank opens a separate account for the amount of the loan and the borrower Withdraws from this account.	Bank allows the account holder to overdraw (i.e., draw in excess of his balance in his account) from his existing Current Account.
The purpose of the loan is to provide finance for some project or expansion of the business.	The purpose of an overdraft is to meet working capital requirements.
A loan is sanctioned for a relatively longer period such as 3 years, 5 years, or even more.	Overdraft is generally sanctioned for a short duration such as 1 month, 2 months, etc.
Interest is calculated on the sanctioned amount and the rate of interest is a little higher than that of overdraft	Interest is calculated on the amount actually withdrawn and the rate of interest is lower than that of loan.
The loan amount has to be repaid fully on the due date or it is repaid in suitable installments.	The overdraft amount is gradually reduced with the deposits made in the current account.