What Is a Demand Loan?

What Is a Demand Loan?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A demand loan is a type of loan that doesn’t have a fixed repayment schedule but instead is payable on demand by the lender. This means the lender can require the borrower to repay the loan at any time. These loans can either be unsecured or secured. They can offer flexibility to the borrower as there’s no set date for the repayment of the principal. Interest on a demand loan may be calculated daily, monthly, or annually, and it’s usually paid regularly.

Related Questions

1. What is an example of a demand loan?

An example of a demand loan is a line of credit provided by a bank to a business. The business can borrow funds as needed, but the bank can request repayment at any time.

2. What is the difference between a demand loan and a term loan?

Want More Financial Tips?

Get Our Best Stuff First (for FREE)
We respect your privacy and you can unsubscribe anytime.

A term loan has a set maturity date and regular repayments, while a demand loan has no fixed repayment date and can be called for repayment at any time by the lender.

3. What are the advantages of a demand loan?

A demand loan can provide flexibility. Because there’s no scheduled maturation date, the borrower can repay the loan as financial resources become available.

4. What are the possible disadvantages of a demand loan?

The main disadvantage of demand loans is the uncertainty they bring, as they can be called for repayment at any time, potentially causing a sudden financial stress to the borrower.

5. Can a demand loan be secured?

Yes, a demand loan may be secured or unsecured. If it’s secured, it’s backed by collateral like property or other assets. If the borrower fails to repay the loan, the lender can seize the collateral to cover the debt.