⏳ Term Loans & Demand Loans
Term loans vs demand loans, tenure-based classification (short/medium/long-term), bank lending trends, legal framework, acceleration of repayment, and key case laws.
Term Loans & Demand Loans
Term Loans vs Demand Loans
| Feature | Term Loans | Demand Loans |
|---|---|---|
| Repayment | Over a period in scheduled installments | Repayable on demand |
| Disbursement | Given in lump sum or tranches | Repaid according to a bank-agreed schedule |
| Purpose | For capital expenditure | Flexible |
Types of Term Loans Based on Tenure
| Type | Tenure |
|---|---|
| Short-term Loans | Repayment within a year. Addresses seasonal or working capital shortfalls. Not for capital expenditures. Unrelated to current assets. |
| Medium-term Loans | Repayment spans 1 to 5 years |
| Long-term Loans | Repayment duration exceeds 5 years |
Bank Lending Trends
- Banks typically offer short-term and medium-term loans
- Development institutions provided long-term loans, but distinctions blurred as they converted into banks
- Banks generally avoid term loans beyond seven years
- Housing loans (20–30 years repayment) have become popular
Legal Framework for Term Loans
- Governed by agreements between lender and borrower
- Loan agreement details loan amount, repayment schedule, interest, costs, etc.
- Governed by the Indian Contract Act
Key Legal Cases
P.K. Achuthan vs State Bank of Travancore 1974:
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Term Loans & Demand Loans
Term Loans vs Demand Loans
| Feature | Term Loans | Demand Loans |
|---|---|---|
| Repayment | Over a period in scheduled installments | Repayable on demand |
| Disbursement | Given in lump sum or tranches | Repaid according to a bank-agreed schedule |
| Purpose | For capital expenditure | Flexible |
Types of Term Loans Based on Tenure
| Type | Tenure |
|---|---|
| Short-term Loans | Repayment within a year. Addresses seasonal or working capital shortfalls. Not for capital expenditures. Unrelated to current assets. |
| Medium-term Loans | Repayment spans 1 to 5 years |
| Long-term Loans | Repayment duration exceeds 5 years |
Bank Lending Trends
- Banks typically offer short-term and medium-term loans
- Development institutions provided long-term loans, but distinctions blurred as they converted into banks
- Banks generally avoid term loans beyond seven years
- Housing loans (20–30 years repayment) have become popular
Legal Framework for Term Loans
- Governed by agreements between lender and borrower
- Loan agreement details loan amount, repayment schedule, interest, costs, etc.
- Governed by the Indian Contract Act
Key Legal Cases
P.K. Achuthan vs State Bank of Travancore 1974:
- Regarding a provision in a bond that allows the lender to demand full debt repayment upon any installment default (Acceleration of Repayment)
- Kerala High Court upheld its legality
Recovery Suit Time Frame:
- For term loans: Suit for recovery can be initiated within three years of a default
- For demand loans: Limit is three years from the date of default
Summary Cheat Sheet
| Concept / Topic | Key Details / Explanation |
|---|---|
| Term Loans | Scheduled installments; for capital expenditure; lump sum or tranches |
| Demand Loans | Repayable on demand; flexible purpose |
| Short-term | Within 1 year; seasonal/WC shortfalls |
| Medium-term | 1–5 years |
| Long-term | Exceeds 5 years; housing loans up to 20–30 years |
| Bank Lending Trends | Typically short/medium-term; avoid beyond 7 years; housing loans exception |
| P.K. Achuthan Case | Acceleration of Repayment upheld by Kerala HC |
| Recovery Suit | 3 years from default for both term and demand loans |
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