New
January 18, 2023
By
Jasmine John

What is Cash Credit Loan and Who Can Avail it?

A cash credit loan is an arrangement between the bank and the borrower. The amount of cash credit loan varies from Rs. 50,000/- to Rs.10 Crore. Lending institutions may require you to put up collateral depending on the amount borrowed. The cash credit limit is decided by the borrower’s track record of paying back loans, credit score, and other details in their CIBIL report. A cash credit loan needs collateral which can be in the form of a third-party guarantee, term deposits or fixed deposits, inventory of raw materials, real estate property, and so on. The interest rate for cash credit loan is higher than that of term loans and personal loans as it is a secured loan

It’s An Arrangement Between The Bank And The Borrower.

It is a short-term loan, secured by collateral, and can be extended for a period of time up to six months. The term of credit depends on its purpose (short or long) and the type of asset used as collateral.

The main advantage of cash credit over other forms of financing lies in its flexibility: you can use it for working capital needs or even expand your business operations with this form of funding.

Amount Of Cash Credit Loan

The amount of cash credit loan varies from Rs. 50,000/- to Rs.10 Crore. The amount depends on the borrower's track record of paying back loans, credit score, and other details in their CIBIL report

The interest rate will also be different for each borrower depending on their individual profile

Collateral Requirement

You may be required to put up collateral when you borrow a loan from a lending institution. Collateral is a guarantee that the borrower will repay the loan. The term deposit, fixed deposit, or other property can be used as collateral for borrowing money from banks and other financial institutions. If your credit rating is poor, it's best to get loans with low-interest rates as they'll help you pay off your existing debts faster than high-interest loans do.

Cash Credit Limit

The cash credit limit is decided by the borrower’s track record of paying back loans, credit score, and other details in their CIBIL report. The Cash Credit Limit can be increased or decreased based on the borrower’s ability to repay loans.

Cash Credit Loan Collateral

A cash credit loan needs collateral which can be in the form of a third-party guarantee, term deposits or fixed deposits, inventory of raw materials, real estate property, and so on.

Collateral is a security that is given to the lender to secure the loan. It is an asset that belongs to you and gives you security for your debt obligation. Collateral can be in the form of real estate property or stocks etc., but it should be something tangible that has value and can be used as collateral if required by lenders at any point during the repayment period (1-3 years).

Interest Rate For Cash Credit Loan

The interest rate for cash credit loans is higher than that of term loans and personal loans as it is a secured loan. Cash credit loans have higher interest rates as compared to other types of loans because they are secured against your property. For example, if you have an existing house with a value of Rs 1 crore and take out a mortgage loan worth Rs 10 lakh on it, then the lender will demand 20% more in terms of interest rate than what he would demand from someone who does not own any property or assets. This means that the lender will charge 20% more in terms of interest if you want to borrow money from him by giving him security over your house or land etcetera!

But what happens when one doesn't have any assets? Well, then there's no way for them to get approved by banks because they don't have enough collateral or equity which could be used as collateral during the processing time period (i.e., several days).

Cash Credit Loan Is A Short-Term Loan

A cash credit loan is a short-term loan which means that it has a repayment period of fewer than 10 years. The repayment terms are flexible and can be done monthly or quarterly. Furthermore, the amount of money you want to borrow is not very high compared to other types of loans so this type of loan is suitable for those who need urgent cash in the short term but do not want any commitment on their part.

Banks Are Focusing On Optimization

Banks have been increasingly looking at the potential of cash flow loans as an alternative to bank overdrafts, which are becoming less and less popular among consumers.

Access To Additional Funds

A cash credit loan is a type of loan that provides you with additional funds on top of the existing borrowing limit from a bank or lending institution. The money provided by the lender can be used for any purpose you want, including paying off other debts, buying items such as furniture or appliances, and even covering medical bills.

You may need this type of loan if:

1. You are unable to pay back your existing debt because it has accumulated over time (i.e., there's been too much interest).

2. Your financial situation has changed since applying for your original loan, such as losing employment or having extra expenses that weren't expected when signing up for it in the first place (such as having children).

Conclusion

A cash credit loan is an easy and hassle-free way to get a short-term loan that can be used for any purpose. The borrower needs to wait for the cash credit limit to be approved by the bank. Lenders may also require you to put up collateral depending on the amount borrowed, which will help them assess whether you are a good risk or not.

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