One of the basic functions of banks is to extend loans to individuals and business entities. There are different types of loans that banks grant to borrowers.
One type of loan the banks grant is referred to as money at call. This type of loan is extended to other banks and financial institutions. The bank who has granted this type of loan has the option to call back the loan on a short notice by1 to 14 days.
Another type of loan is cash credit. This type of loan is extended to borrowers based on the value of their current assets. An account is opened under the borrower’s name that lets him withdraw from the accountevery now and then. The amount granted to him is never bigger than his current assets’ value. Interest is charged on the actual amount withdrawn from said account.
An overdraft is another accommodation or loan a bank extends or grants to its depositor. It allows the depositor to withdraw more than the amount in his account. Interest is computed based on the amount overdrawn.
The banks also discount bills of exchange as a form of a loan. The amount granted by the bank is based on the maturity value of the bill of exchange after charges are deducted. When the bill of exchange matures the bank collects payment for the accommodation it has given the holder of the bill of exchange.
There are still other types of loans banks grant like credit cards, long term loans and personal loans. The personal loans individual get from banks are based on their salaries and paying capacity. Often these loans are used to purchase some personal things like gadgets, appliances, vehicles, houses or even to finance education. He borrowers pay the bank on an instalment basis wherein their amortizations are being deducted from their salaries.