Loans vs Advances : Check Top 7 Key Differences

Loans and advances are two types of financial products commonly used by individuals and businesses to access the funds they need to meet various financial goals. Although both loans and advances serve a similar purpose, there are significant differences between the two that are important to understand before deciding which one to choose.

In this blog, we will explore seven major differences between loans and advances. We will also discuss the various types of advances and loans available, as well as the eligibility criteria for Personal Loans and short-term loans from Hero FinCorp. Let’s begin with understanding the meaning of loans and advances.
 

What are advances?

Advances are a type of credit facility that NBFCs like us offer to their customers. Advances are similar to loans, but they are short-term in nature. Some common types of advances are:

• Cash Credit
• Overdrafts
• Working Capital Finance

 
Read More: What Hidden Charges Should You Expect with Personal Loans
 

What are loans?

Loans are funds offered by various financial institutions to individuals and businesses for multiple purposes. Loans offer a lump sum amount to the borrower, who agrees to pay back the money with interest over a certain period. The various types of loans include:
 

• Personal Loans
• Two-wheeler Loans
• Loan Against Property
• Business Loans

 

Seven major differences between loans and advances

Here are the key seven differences between loans and advances:
 

1. Purpose

   The key difference between loans and advances is their purpose. Loans are typically used for long-term financing needs, such as purchasing a property or a vehicle. In contrast, advances are used for short-term financing needs, such as paying for inventory or covering expenses until the next payment cycle.
    

2. Types of Advances

   Advances can be categorised into various types, such as secured advances, unsecured advances, demand advances, term advances, and revolving advances. Secured advances require collateral, while unsecured advances do not any security. Demand advances can be repaid any time, while term advances have a specific repayment schedule. Revolving advances can be used repeatedly, such as a line of credit.
    

3. Interest Rates

   Interest rates are another significant difference between loans and advances. Loans usually have a lower interest rate than advances because they are long-term and have a fixed repayment schedule, which reduces the risk for the lender. On the other hand, advances have a higher interest rate because they are short-term and often unsecured, which increases the risk for the lender. The interest rates for loans and advances vary depending on the lender, the borrower's creditworthiness, and other factors.
    

4. Repayment Terms

   Repayment terms are another crucial difference between loans and advances. Loans usually have a fixed repayment schedule, which means the borrower has to make regular payments over a specific period, such as 5 or 10 years. Advances, on the other hand, are more flexible and can be repaid at any time. Some advances may have a specific repayment schedule, but most do not.
   
   If you are considering taking a loan, it is important to download our short-term loan app, which offers instant Personal Loans of up to Rs 1.5 lakhs. Loan apps have become increasingly popular in recent years, especially among individuals who need quick access to funds for emergency expenses or unexpected bills. It is always recommended to use an app for better financial management.
    

5. Risk

   Risk is another significant difference between loans and advances. Loans are usually less risky for the lender because they are long-term and have a fixed repayment schedule, which reduces the chance of default. On the other hand, advances are riskier because they are often unsecured, increasing the likelihood of default. This is why advances often have higher interest rates than loans.
    

6. Borrower Eligibility

   Borrower eligibility is another significant difference between loans and advances. Loans usually require a good credit score and a steady income to qualify. On the other hand, advances are often easier to qualify for because they are short-term and have higher interest rates. However, the eligibility criteria for advances vary depending on the lender and the type of advance.
    

7. Processing Time

   Processing time is another difference between loans and advances. Loans may take longer to process (in case the applicant may not fulfil the eligibility criteria) as they require specific documentation and verification.
    

Advances, on the other hand, are often processed quickly because they require basic documentation and verification. This is because advances are usually for smaller amounts and have a shorter repayment period.

Read More:  Understanding Loan Repayment in Herofincorp
 

Conclusion

Loans and advances are two types of financial products that serve different purposes and have significant differences in terms of interest rates, repayment terms, collateral requirements, risk, borrower eligibility, and processing time. Loans are used for long-term financing needs, while advances may be used for short-term financing needs.
 
Understanding the key differences between loans and advances and their various types is essential to make an informed decision on which one to choose based on your financial needs and circumstances. 
 
If you are looking for a loan, consider applying through our website or mobile app. We have a hassle-free loan approval process with very few requirements. For example - if you are considering a Personal Loan from Hero FinCorp, just check your Personal Loan eligibility on our website and apply instantly.