Question

Distinguish between you two types of credit facilities

Answer 1

Formal source of credit:

 

a)   

Loans that are given by banks and co-operative

institutions are called Formal sector of credit.

b)   

The functioning of these banks and co-operative

institutions are supervised by Reserve Bank of India – RBI.

c)   

These institutions are required to report to

the RBI the rate of interest, amount lending, etc.

d)   

Borrower is required to submit collaterals and

documents.

 

Informal source of credit:

a)   

Loans that are given by money lenders, friends

and relatives are called Informal source of credit.

b)   

They are not supervised by Reserve Bank of

India – RBI.

c)   

They can lend money at any interest rate and

use any means to get back their money.

d)   

Borrower is not required to submit collaterals

and documents.

Answer 2

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Thanks , For Your Question .

Here , It Is ...

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=) There are two types of credit facilities :-

1.) Overdraft .

2.) Cash Credits .

So , Let's get the difference ...

⏺️) Cash Credits =)

(i) Cash credit is a type of short term loan provided to companies to fulfill their working capital requirement .

(ii) Pledge or hypothecation of a inventory .

(iii) Cash Credit Account .

⏺️) Overdraft =)

(i) Overdraft is a facility given by the bank to companies, to withdraw money "more" than the balance available in their respective accounts .

(ii) Assets of like financial instrument and property .

(iii) Current Account .

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