As the name suggests, demand loan is the type of loan in which the lender can demand to be repaid at any time. This agreement is clear for both the borrower as well as the lender at the time of processing. Often, in-demand loans, lenders, or financiers can claim the lent money to be paid in comparatively shorter periods of time compared to other loans such as term loans. Because these loans are sanctioned without fixing on the duration of repayment, often, borrowers can enjoy the liberty of paying back the amount without dealing with prepayment costs.
What are Demand Loans Used for?
Many areas can benefit from the use of capital claimed from demand loans, some of which are stated below:
- To take care of day-to-day working capital needs
- Funding (short-term) for new businesses
- Rent payments
- Salary payments
- For purchase of raw material
- For purchase of vehicles
- For purchase of livestock
- For purchase of machinery and equipment
- Temporary working capital
- Investment loans
- Partnership loans
Features of Demand Loans
Mentioned below are the features of these types of loans;
- Demand loans are secured loans that the lenders grant against tangible assets owned and offered by the borrowers as collateral.
- The tenure of the loan is negotiable and is decided by the lender.
- The lender decides the term of the loan.
- Demand loans are essentially approved to be able to meet short-term business requirements.
- The tenure of this loan can not be lesser than seven days.
- Components of the loan can be divided by banks over different maturity periods according to the requirement of the borrower.
Benefits of Demand Loans
Despite being an unconventional method such as availing a tenure loan, there are several advantages associated with demand loans, some of which are stated under here:
- Demand loans are apt for gaining quick capital for running businesses and buying raw material, paying salaries, rents, etc.
- The interest amount to be paid by the borrower is only calculated on the percentage of the said amount that is actually used.
- The loan amount can be repaid to the lender by the borrower earlier than the decided tenure without inculcating any additional penalties for prepayments.
- Borrowers can avail themselves of the loan without worrying about long-term EMI’s (Equated monthly installments).
- Borrowers can make small payments as per their liquidity until the time they can pay back the entire amount.
Demand Loans vs. Term Loans
There is an ongoing debate about what type of loan is better for you between demand loans and term loans. Let us take a look at the pros and cons of both so that a better understanding can be achieved as to why demand loans are better for you, given your requirement.
Disadvantaged of Demand Loans
Now that we have had an in-depth understanding of demand loans and their pros let us look at some disadvantages.
- The lender or financer can demand for the loan amount back at any time as per his/her convenience, which could lead to unsavory circumstances for the borrower.
- The borrower could extend the loan tenure if he/she doesn’t have the amount at the time of the finalized tenure date, lengthening the bargain’s payment process.
- Interest is only levied upon the amount used by the borrower and not the entire loan amount, which could reduce the chances of earning money for the financer in case a small amount is used.
- Tangible assets work as collateral in case of a demand loan, so in case some loophole is overlooked by the lender, the borrower could abscond with the money, although this is highly unlikely.
To be able to gauge the pertinence of a demand loan, you must identify the type of business you want to run to avail such a facility. Demand loans are extremely flexible and beneficial, both to the borrower and the financier, making the process a lot easier. No penalties or additional interest and prepayment penalties make this type of loan a very lucrative opportunity for many. Swift and efficient, demand loans are the ones for you if you are looking at short-term capital with the least hassles and less paperwork. Go ahead and apply for your demand loan today and watch your business flourish without the added worry of finance.
Demand Loan FAQs:
1. Under what circumstances should one apply for a demand loan?
2. Does a demand loan mean that one has to make repayment as per the demand of the lender?
3. Can I make the repayment of my demand loan in installments?
4. Is overdraft and demand loan the same thing?
5. Do you need to put collateral against a demand loan?
6. How do you differentiate between term loans and demand loans?
7. In case I am ready to repay my demand loan before the stipulated time period, do I need to pay any extra charges?
8. Do demand loans work for large scale businesses as well?
9. What other names can demand loans go by?
10. In addition to collateral, what else can I use to avail a demand loan?
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