What are the advantages and disadvantages of demand loan?
The demand loan is a type of loan that has low interest and no repayment plan. The parties agree to understand that the debtor will refund the money whenever the creditor asks for it. The debtor benefits by having the amount of money without stress from payments or high interest rates. The creditor benefits because he can get the money back at any time without waiting for the payment period to expire. The disadvantages are that the creditor could request a payment in an uncomfortable time or that the debtor does not have to repay the loan.
Most loans are provided by banks or credit agencies. The creditor will receive a certain amount of money with understanding that the money will be returned back over time and interest. Interest rates are determined by the government - or are based on the rates set by the government - and the salary schedule is determined by a bank or credit agency. It is expected that the debtor usually pays part of the original amount of the loan, known as the front and part of the interest every month. Demand loans differ because they do not have plans for payments and interest rates are usually lowerí í í than for banks or rental agencies.
In order to understand how demand a loan works, two friends who know each other can consider. A friend could borrow money from a friend B. At some point in the future, a friend A pays the money back, but if a friend B needs money, he can ask for it. These two friends concluded a very simple type of demand contract. This arrangement only works if both participants trust people.
A debtor who enters the benefit of a demand loan by not having to make payments. Money borrowed through a demand loan is often used to start a business or to buy goods or real estate that will improve existing business. The cost of the front could prevent him from having enough money for regular payments. Instead, the debtor can wait until the investment has started to earn money before making any pays for PMr.
The disadvantage for the debtor is that the creditor can request a complete payment at any time. If the creditor has problems with money, he can get a loan and interest back from the debtor. The creditor could also apply for payment if he thinks the debtor is heading for financial difficulties to pay the loan before the debtor fails or suffers from other financial misfortunes and the money is lost.