5.Loans and Advances.pptx common types of loans and Advances

common types of loans and Advances

1. Loans and advances Dr.S.Jayanthi Sobhana Asst.Professor ,Department of commerce PA Sri Ramakrishna College of Arts & Science

2. In banking, loans and advances are the primary and most significant way for banks to earn revenue . A  loan  is a structured, long-term financial product with a fixed repayment plan, while an  advance  is a more flexible, short-term credit facility. 

3. Common types of loans Secured loans These loans require the borrower to pledge an asset, such as property or a vehicle, as collateral. This reduces the risk for the bank and typically results in lower interest rates.  Home loans:  For purchasing or constructing a residential property. Car loans:  Used for purchasing a new or used vehicle. Gold loans:  Provided against gold jewelry or ornaments as security. Loans against property (LAP):  Given against the mortgage of residential or commercial property. 

4. Unsecured loans These loans do not require any collateral and are provided based on the borrower's creditworthiness and financial history. Because of the higher risk, they often have higher interest rates.  Personal loans:  Used for various personal expenses, like medical bills, vacations, or wedding costs. Education loans:  Cover the costs of higher education and are typically unsecured. Short-term business loans:  Help businesses cover operational costs or facilitate expansion. 

5. Common types of advances Overdraft facility:  Allows a customer to withdraw funds beyond their account balance, up to a pre-approved limit. Cash credit:  A facility that lets a business or individual borrow money up to a certain limit from a bank, typically for working capital needs. Bill discounting/purchasing:  A bank advances funds to a business based on its bills of exchange. The bank essentially buys the bills at a discounted rate before they mature.