Understanding Loans and Advances

What is the primary function of commercial banks?

• To provide investment advice to clients.

• To issue government currency.

• To manage stock market transactions.

• The primary function of commercial banks is to accept deposits and provide loans.

Define demand loans.

• Demand loans are loans that can be called for repayment by the lender at any time.

• Demand loans are secured by collateral.

• Demand loans can only be repaid after a set period.

• Demand loans have fixed repayment schedules.

How are term loans different from demand loans?

• Term loans are only available for businesses; demand loans are for personal use.

• Term loans have a fixed repayment schedule; demand loans can be called for repayment at any time.

• Term loans have variable interest rates; demand loans have fixed rates.

• Term loans are always unsecured; demand loans are secured.

What are advances in the context of banking?

• Advances refer to the interest rates set by banks.

• Advances are loans or credit provided by banks to customers.

• Advances are fees charged by banks for account maintenance.

• Advances are deposits made by customers to banks.

What is an overdraft?

• An overdraft is a financial situation where a bank account holder withdraws more money than is available, resulting in a negative balance.

• A type of loan that must be repaid immediately.

• A fee charged for maintaining a bank account.

• A method of saving money in a bank account.

Who are the typical customers for overdraft facilities?

• High-income earners with no financial issues

• Retired individuals with fixed pensions

• Individuals with temporary cash flow issues, small business owners, and students.

• Corporate executives with stable incomes

What is the usual duration for which an overdraft is granted?

• Granted for a few hours only.

• Typically lasts for over a year.

• Usually granted for a few days to a few months.

• Available for a few weeks to a year.

How is interest charged on an overdraft?

• Interest is charged monthly on the total account balance.

• Interest is only charged if the overdraft exceeds a certain limit.

• Interest is calculated annually based on the average balance.

• Interest is charged daily on the overdrawn amount at a specified interest rate.

Is an overdraft a secured or unsecured credit?

• Secured credit

• Installment loan

• Unsecured credit

• Revolving credit

What happens when a customer overdraws their account?

• The account receives a bonus for extra funds.

• The account goes into a negative balance, and the customer may incur overdraft fees.

• The customer is automatically given a loan.

• The account balance resets to zero.