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Understanding the Key Differences Between Term Loans and Cash Credit

January 17, 2024 • 3115 views

A term loan is a type of loan that provides you with a lump sum of money upfront, which is to be repaid over a predetermined period, typically in fixed monthly instalments. If you need to borrow a large sum for buying a home, buying business equipment, or buying a car, you can opt for this kind of loan. The repayment tenure for term loans can vary, ranging from a few months to several years, depending on the lender and the purpose of the loan.

One of the defining features of term loans is predictability. You can know the exact amount you repay every month, making it easier to budget and plan your finances accordingly. In addition, term loans come with competitive interest rates compared to other types of loans, making them an attractive credit option. to

Understanding Cash Credit

Cash credit, on the other hand, is a revolving line of credit that allows you to access funds up to a predetermined credit limit. Unlike term loans, cash credit does not involve receiving a lump sum upfront. Instead, you can withdraw funds from your credit line as needed. The interest is charged only on the amount borrowed and for the duration it is utilised.

Cash credit is commonly used by businesses to manage their working capital needs, cover short-term expenses, or take advantage of growth opportunities. 

Also Read - Short Term Loan Vs Long Term Loan: Differences, Benefits, Characteristics

Term Loan vs. Cash Credit: An Overview

Let's look at the difference between term loan and cash credit:


Term Loan

Cash Credit

Repayment Schedule

Fixed monthly instalments over a predetermined period

Flexible, with interest charged on the amount utilised


Typically used for specific, large expenses (e.g., buying a house, starting a business)

Used for short-term working capital needs, ongoing operational expenses, and business growth

Interest Rate

Generally lower interest rates

Typically, higher interest rates due to flexibility


Highly predictable with fixed payments

Less predictable due to variable usage


You get the flexibility in terms repayment tenure

Highly flexible, allowing borrowers to use funds as needed

Ideal for

Individuals and businesses with specific, one-time funding needs

Businesses with fluctuating cash flow and ongoing financing needs


Also Read - What is Working Capital Term Loan - Meaning, and How It Works?

To Conclude

Choosing the right financing option between term loans and cash credit depends on your requirements. Term Loans offer predictability and lower interest rates, making them suitable for specific, one-time expenses. On the other hand, cash credit provides flexibility for businesses with fluctuating cash flow needs. It's essential to carefully evaluate your financial goals and assess which option aligns better with your unique circumstances.

When it comes to securing a Personal Loan that suits your needs, Poonawalla Fincorp offers an array of options. Understanding the differences between term loans and cash credit can help you make an informed choice when considering Poonawalla Fincorp's loan offerings.

By selecting the right financial product, you can effectively manage your finances and achieve your goals while minimising unnecessary costs and stress. So, take the time to evaluate your needs and make the financial decision that's right for you with the support of a trusted institution like Poonawalla Fincorp.


*T&C Apply


We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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