| Parameter | Demand Loan | Term Loan |
| Rate | Interest rates on demand loans are higher than term loans. | Interest rates on term loans are lower than on demand loans. |
| Interest Payment | If you borrow a demand loan, you must pay interest only on the amount you withdraw from your credit limit. | If you borrow a term loan, you must pay interest on the entire principal amount whether you use the loan amount or not. |
| Type of Interest | Demand loans have floating interest rates that are subject to market fluctuations. | Term loans have fixed interest rates that the lender determines when approving the loan application. |
Read Also: Choosing between Short term and Long term loans
Required Documents for Demand Loans and Term Loans
The documentation requirements for demand loan vs. term loan vary according to the lender’s policy. Here are some standard documents you must provide to borrow the loan you require:
To apply for a demand loan, you must provide the following documents:
To apply for a term loan, you must provide the following documents:
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PAN Card
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Identity proof like an Aadhaar card, passport, driving license, voter ID card, etc.
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Address proof like an Aadhaar card, driving license, voter ID card, registry copy, utility bill, property tax receipt, rent or lease agreement, etc.
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Business continuity proof like service tax registration, trade license, sales tax, copy of partnership deed, certificate of practice, etc.
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Signature proof like PAN card, passport, banker's verification, etc.
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Income proof like the latest ITR, GST returns, latest audited financials, bank statements, etc.
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List of Directors
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Shareholding patterns
The process to Apply Demand Loan
Now that you understand what a demand loan is, often used for working capital requirements in business, and wish to apply for one, these are the steps to follow:
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Visit the lender’s website.
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Click on the ‘Apply’ button.
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Enter the OTP you receive on your 10-digit mobile number.
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Fill out the loan application form with your details like name, date of birth, PIN code, PAN, etc.
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Click on ‘PROCEED’.
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Enter the loan details like the loan amount, credit limit, etc.
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Complete your KYC by submitting the application form.
Process to Apply for Term Loan
Follow these steps to apply for a term loan:
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Visit the website or download the loan app of a reputed lender like Hero FinCorp.
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Fill out the application form with essential details.
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Upload the relevant documents.
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Enter the loan amount and repayment tenure.
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You will receive a reference number for future use if you qualify for the loan.
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A customer representative will call you for more information and formalities.
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After verification, you will receive a loan offer you must accept to get a lump sum disbursal directly into your bank account.
Read Also: Short-Term Business Loan – Meaning, Interest Rate, Pros and Cons
Conclusion
Finalising a loan between a demand and a term loan depends on your financial requirements and repayment capacity. If you need funds for a short period with greater flexibility for repayment, a demand loan would be the better option. However, if you need higher loan amounts for more extended periods, a term loan from Hero FinCorp with competitive interest rates and flexible repayment tenures will be the right option. So carefully evaluate demand loan vs. term loan before finalising your decision.
Frequently Asked Questions
1. What are the examples of demand loan and term loan?
When you avail of an overdraft facility, you get a credit limit within which you can withdraw at any time to cover the urgent expense and repay with interest as and when feasible. On the other hand, when you borrow a Business Loan, you must repay it in monthly instalments comprising both principal and interest components.
2. Which is better, cc or OD?
Cash credit (cc) and overdraft (OD) are similar, but there are differences between the two. Interest rates are lower with cc, and cc is often sanctioned based on inventory and stocks.
3. What are the categories of term loans?
Term loans have three categories: short-term, intermediate-term, and long-term.
4. What are the three types of term loans?
The three types of term loans are short-term, medium-term, and long-term.
5. What is the difference between term loan and normal loan?
Fixed repayment schedules, lower interest rates, and repayment in instalments are some features that make term loans different from normal loans.
