Question

Distinguish between:

cash credit and loan.

Answer 1

1. Cash Credit:
   1. In this arrangement, the bank advances cash loans to the borrower against some tangible security or personal guarantee.
   2. The borrower can withdraw up to his cash credit limit according to his needs and can deposit back any surplus.
   3. Interest is charged on the amount actually withdrawn and not on the whole amount granted.
   4. Cash credit is for a longer period than an overdraft.
   5. It is a popular method of borrowing for businessmen.
2. Loans:
   1. The bank advances a fixed amount in a lump sum to the borrower for an agreed-upon period.
   2. The borrower may withdraw the whole amount at once or as per his needs.
   3. Interest is charged on the whole amount sanctioned.
   4. Commercial banks grant both short-term and medium-term loans.
   5. Loans are granted against the security of assets or against the personal security of the borrower.

Answer 2

	Basis of Distinction	Cash Credit	Loan
1.	Nature	Revolving credit arrangement.	It is not a revolving arrangement.
2.	Sum	The amount credited to the bank account bearer is withdrawn as per needs.	Lump sum payment.