Short term loan facilities are increasingly gaining popularity since people don’t like waiting when they have urgent need of funds. Being easy to grant and quick to repay, short-term loans are a very convenient form of loans. Let’s take a look at two popular short-term loans and how they are different and alike:
Cash credit is a type of short-term loan where the money you withdraw from the bank is not restricted by the money you have in the cash credit account. Instead, there is a pre-defined limit up to which you can borrow money.
Cash credit loan primarily of two types. In case the assets hypothecated remain in the possession of the borrower and cannot be claimed by the lender, it is called Open Cash Credit or no credit check loans. However, in case you need to submit the goods to the lender (like giving a key of your factory) for the credit loan, it is called Key Cash Credit.
Overdraft limit loan is a short-term loan where a customer can withdraw more money than he currently has, from the bank account.
There are two types of OD. If the overdraft is provided without any collateral as security, it is called Clean Overdraft. Conversely, the overdraft provided against collateral as security is known as Secured Overdraft.
Similarity between CC and OD
– Both CC and OD allows you to withdraw more money than you currently possess.
– Both CC and OD are of two types, broadly categorized as secured and unsecured.
– In case of CC, the withdrawing capacity is defined by the valuation of any collateral security the withdrawer might have. In case of OD, the overdraft limit is defined by the user’s financial status and repayment capabilities.
– In case of CC, the hypothecated goods could be anything- raw materials, resources or semi-finished products. However, in case of bank overdraft, the security assets must be finished goods with clear valuation.
– Availing cash credit from a bank requires a cash credit account in the same bank. For overdraft limit facility, the borrower must hold a current bank account in the same bank.
Key points to remember
- The most appealing factor here is the quick process. Since withdrawer must already have an account with the lender, it saves for a lot of paperwork and quicken loans.
- As much of the banking infrastructure is digitalized, you can easily apply for cash loans online, for either cash credit or overdraft.
- Due to the prospect of bad credit loans or overdrafts, it is very hard to get unsecured withdrawal (unless you are an old and reliable customer). However, secured short-term loans could be granted to just about anybody.