An on-call loan is a type of loan in which a borrower obtains the right to use funds from a specially opened account at his discretion. The amount is limited. An on-loan loan is a loan granted by a bank with the right to demand a refund at any time.
Definition
So what is an on-call loan? Let’s take a closer look. Borrowing money is a need that in the modern world often arises both for individuals - citizens and individual entrepreneurs, and for medium and large enterprises, firms, and companies. Borrowed funds are actively attracted both to satisfy personal needs, and to solve financial problems in the process of business development.
Credit institutions today can offer a wide range of services in the field of lending and are able to meet the requirements of any client on acceptable terms. It remains only to choose the most suitable for yourself.
An on-call loan is one of the rare but interesting banking services. It is also called a demand loan. The loan term does not have a strictly defined limit. This type of loan originated in England. Today, this approach is more inherent in American banks.
In our country, such services are not widespread. Credit institutions in Russia prefer to set the terms for using borrowed funds. In addition, according to the current legislation of the Russian Federation, if the terms of the loan repayment are not specified in the contract, the debt must be repaid within 30 days. This service is new and not yet very popular.
Features of an on-loan loan
This type of loan has a number of differences from other types of loans. The main feature is that an on-call loan is a type of service in which a refund must be made at the request of the bank. Usually the customer is warned about this for 2-7 days. During this period, the borrower must pay the debt. Early repayment of debt is allowed, if provided for in the contract. No commission is charged.
Another distinguishing feature of an on-loan loan is the opening of a special account. It has the characteristic features of both a loan and a current one. It records all operations and data on the mutual debt of the bank and the client. The borrower has the right to use the funds in the account at any time and withdraw them in any amount within the limit.
Each month, the client is obliged to pay interest on the loan, which is charged strictly on the borrowed amount for the actual period of its use. The rate is much lower than for other types of loans. The main debt the customer has the opportunity to repay at any time convenient for him in installments or a one-time payment. The account balance can be debit or credit.
Terms and conditions of registration
In order to receive an on-loan loan, you must first conclude an agreement with the bank. For this purpose, it is necessary to submit an application and fill out a questionnaire of the appropriate form.
Then the bank will assess the solvency of the potential borrower. To do this, you must present a package of documents:
- financial report for the last year and balance sheet data;
- insurance policy;
- documents confirming ownership of the property or lease;
- company charter;
- certificate of registration of a legal entity.
The main condition of credit institutions for the issuance of a loan is the guarantee of repayment of the loan. In this capacity, mainly securities (stocks, bonds, bills), customer goods or equipment. It is necessary to present documents on collateral to the bank. The bank will evaluate it. Depending on the value of the collateral, the amount of funds that will be made available to the client is determined.
After the above actions, a contract is concluded between the lender and the borrower. When signing it, the client is advised to pay attention to the term for notifying the bank of the need to repay the debt. The longer it is, the lower the risk of losing the property that is in the pledge.
For regular customers there is no requirement to provide evidence of solvency. It is enough to present documents for a pledge.
Then you need to open an account with a bank, where the amount agreed in the loan agreement will be received. At the request of the bank, the debt must be repaid within a week.
Who can use the service
Calling a loan is a popular type of loan among brokers who profit from the sale and purchase of securities used as collateral. Employees of stock exchanges or other owners of securities also use this service.
Commercial and industrial enterprises and companies use on-call lending as a source of additional financial resources for a major transaction. These are mainly regular customers of the bank who urgently needed money.
Benefits for the Bank
In order to expand the customer base, credit institutions periodically expand the list of their services, providing their potential borrowers with a wide choice. Each of them provides its own capabilities and limitations. All types of lending have positive and negative sides for both lenders and borrowers. An oncology loan is no exception. Consider its pros and cons in more detail.
Call loans refers to the financial products of the bank, which are the best opportunity to increase liquidity. This is due to the fact that most often the client provides securities as collateral.
In favor of the bank’s liquidity level, the fact that on-call loans are short-term loans, in spite of the fact that repayment of borrowed funds may take a rather long period of time, is also in favor.
A positive factor is the low risk of default on the loan, since it is secured by a pledge
Benefits for the borrower
An on-call loan is attractive because it is a demand loan, which provides for a lower interest rate than in other cases. In addition, the fee for using borrowed funds is calculated on the amount actually used and only for the period from the moment of their withdrawal to the return.
In addition, in this case, the targeted use of finance is not required. The borrower has the right to spend the funds received at his own discretion, without reporting to the creditor.
A great advantage is the ability to receive money and pay off debt at any convenient time and in a convenient way for yourself: in parts or in a single payment. Insurance when applying for a loan is not required, as a pledge in the form of securities is provided.
Regular customers can count on certain benefits: an increase in the size of the loan or additional discounts on interest for using a loan. Such borrowers can get an on-loan loan for a year or even longer. But this may turn out to be a drawback, as over a long time the policy of the bank may undergo changes not always for the better. And in this case, it may suddenly become necessary to return funds on a large scale in a fairly short time.
Bank Risks
The most significant drawback of on-line lending is the inability to plan and predict the profit from such loans. The reason for this is the client's right to pay the debt at any time, including until the expiration of the contract, and to withdraw the collateral.
Borrower Risks
On-call loan - what is it? This is a demand loan. Consequently, the negative factor for the loaned is that the bank has the right to inform at any time about the need to repay the loan debt. The risk lies in the possible absence at that time of funds in full from the borrower. In this case, the collateral will pass into the possession of the bank. Since securities may have high liquidity, their loss will bring a rather significant financial loss to the borrower.
In the case of using such a bank service in order to reduce risks, it is recommended to take funds exclusively for their intended purpose and always be prepared for the fact that the bank may demand their return.