Distinguish between a Loan and Cash Credit.

Question

Accepted Answer

| Basis | Loan | Cash Credit |
|---|---|---|
| Amount released | Paid in a lump sum (or agreed instalments) at once | A limit is sanctioned; borrower draws as needed |
| Interest charged on | The full sanctioned/disbursed amount | Only the amount actually withdrawn/outstanding |
| Repayment | Fixed instalments over a fixed period | Can be repaid and redrawn repeatedly within the limit |
| Typical use | Fixed-purpose, medium/long-term financing | Working-capital financing against stock/receivables |

The essential difference is that a Loan is a one-time disbursement with interest running on the whole sum, while Cash Credit is a flexible, revolving limit where interest tracks only the amount genuinely in use at any time.
> [!ANSWER]
> A Loan is a lump-sum disbursement with interest on the full amount; Cash Credit is a sanctioned limit drawn/repaid as needed, with interest charged only on the amount actually outstanding.

Q.Distinguish between a Loan and Cash Credit.

Concept understanding — Primary Functions — Lending Money

Basis	Loan	Cash Credit
Amount released	Paid in a lump sum (or agreed instalments) at once	A limit is sanctioned; borrower draws as needed
Interest charged on	The full sanctioned/disbursed amount	Only the amount actually withdrawn/outstanding
Repayment	Fixed instalments over a fixed period	Can be repaid and redrawn repeatedly within the limit
Typical use	Fixed-purpose, medium/long-term financing	Working-capital financing against stock/receivables

Q.Distinguish between a Loan and Cash Credit.

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