Question

difference btwn formal and informal loan​

Answer 1

Answer:

Money and Credit

The distinctions: (i)Formal sector loans are such loans which are taken either from the banks or the co-operatives. While informal sector loans are those which are taken from moneylenders, traders, employers, relative and friends.

Answer 2

Required Answer :

First of all lets get to know about Loan :

• In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc.

• The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that debt until it is repaid as well as to repay the principal amount borrowed.

Secondly Lets learn about Formal Loan :

• Formal sector loan: They are supervised by the Reserve bank of India. These consists of loans from banks and cooperatives.

• It provides loans at fixed rate and terms. ... It gives loans only for making profits.

Thirdly Lets learn about Informal Loans :

• Although loan terms differ across and within informal lending institutions, informal loans are typically small, given to relatively poor people and available on short notice.

• From the borrower's perspective, informal loans are often used to smooth consumption expenditures.

Now lets come to the concept of the Question That is The difference between formal and Informal loan :

• Formal sector loan is given by commercial bank whereas informal sector loan is given by money lenders, big merchants, etc.

• Formal sector loans has a low rate of interest where as informal sector loans has a very high rate of interest.

Thank you for asking such an useful Question Mate.