Image credit forexsiteds.com

Image credit forexsiteds.com

ZIMSEC O Level Commerce Notes: Money and Banking: Bank Loans and Overdrafts

Bank Overdrafts

  • Are an informal way of borrowing money.
  • They are given to current account holders only.
  • Are a short term form of borrowing.
  • Interest is charged daily on the amounts owing.
  • The interest rate levied on these amounts is usually high.
  • The repayment period is not fixed.
  • The repayments are irregular.
  • No collateral security is required.

Bank Loans

  • Are a formal way of borrowing money.
  • Interest is charged on the whole amount.
  • Collateral security is required from the borrower.
  • A loan account is opened for the customer.
  • The repayment period is fixed.
  • Repayments are done in pre-agreed installments.
  • The interest rate is lower than in the case of overdrafts.
  • The rate of interest is fixed.
  • Information is needed by a bank before granting a loan request.
  • The customer’s personal details for example name, address, date of birth, current payslips.
  • Amount of loan required.
  • Period for which the loan is required.
  • Proof of residence.
  • Details of previous record with bank or other institutions for credit rating purposes.
  • Customer’s current commitment e.g. any other loans currently held.
  • ZIMRA Tax returns.
  • Purpose of loan.

Procedure in obtaining a loan.

  • A customer contacts the bank manager/bank representative.
  • The customer is interviewed by the bank manager/representative.
  • The customer informs the bank what the purpose of the loan is.
  • The customer informs the bank the amount of the loan.
  • The customer informs the bank on his/her collateral.
  • Examples of items that can be presented as collateral include Motor vehicles,equipment or buildings.
  • The customer fills in the application.
  • The application is assessed and if it is successful the customer and bank representative sign the agreement forms.
  • A loan account in the customer’s name is opened.
  • The loan account is credited.

Factors taken into account when assessing the loan application.

  • The current economic climate e.g the Government’s coming Fiscal and Monetary Policies.
  • Local trading conditions for example any current embargoes/ sanctions.
  • Viability, Liquidity and Profitability of the customers proposed project.
  • The financial rating or creditworthiness of the customer.

To access notes on the differences between a bank loan and a bank overdraft go to this page.

To access notes on other topics go to the Commerce Notes page.


Quick NetOne, Telecel, Africom, And Econet Airtime Recharge

If anything goes wrong, click here to enter your query.