Difference Between Loan And Advance

Difference Between Loan And Advance

The major dissimilarities or difference between loan and advance can be pointed out as follows:

1. Introduction

Loan: Amount of money borrowed from banks or financial institutions for the specific period of time with fixed rate of interest to meet long-term financial needs.

Advance: Amount of money borrowed for short period of time to meet current financial needs.

2. Refers To

Loan: It refers to a "debt'

Advance: It refers to a 'credit facility'

3. Purpose

Loan: It is borrowed to fulfill long-term financial obligations such as fixed assets, land, building, machinery etc.

Advance: It is borrowed to fulfill short-term financial obligations such as working capital, operating expenses etc.

4. Amount Borrowed

Loan: Generally, large amount of money is borrowed

Advance: Small amount of money is borrowed

5. Repayment

Loan: It is a long-term borrowing. So, it is payable after long period (after 1 year or more)

Advance: It is a short term borrowing. So, it should be paid within one year.

6. Procedure

Loan: It requires a long process and various formalities to obtain loan

Advance: It involves short process and less formalities

     Also Read: 

Difference Between Overdraft And Loan

7. Interest

Loan: Fixed rate of interest should be paid

Advance: Generally, interest is nor charged on advance. But in some cases minimum rate of interest may be charged.

8. Collateral

Loan: Collateral is required to borrow loan from financial institutions

Advance: Collateral is not required to receive advance

Loan Vs Advance (Comparison Chart)

Basis For Difference	Loan	Advance
Introduction	Money borrowed from financial institutions for long term purpose	Money borrowed to fulfill short term needs
Refers To	Debt	Credit Facility
purpose/Objective	To fulfill long-term financial obligations	To fulfill daily financial needs
Amount Borrowed	Large	Small
Repayment Period	Longer	Shorter
Procedure	Long	Short
Interest Charged	Yes	No
Collateral Required?	Yes	No

I hope this post is helpful to understand the difference between loan and advance and to make comparison between them.