What is Loan?
A loan is a type of financial assistance that a bank, credit union provide or other financial institution. It is an amount of money that is lent to a person or a business, with interest, over a certain length of time. Many different types of loans are available, including personal, home, auto, student, and business loans.
Interest is a term used to describe the expense of borrowing money and is frequently expressed as a percentage of the loan amount. The payback period is the time frame during which the borrower must return the loan, and the fees are any expenditures that might be tacked on top of the principal amount of the loan, including origination or closing costs.
To obtain a loan, borrowers must provide the lender with information about their credit history and financial situation. This helps the lender determine the borrower’s creditworthiness and ability to repay the loan. Borrowers with a good credit score and a stable financial situation are more likely to be approved for a loan and may be offered better terms.
What is Advance?
An advance is a type of financial assistance provided to an individual or organization before a specific task or project is completed. It is provided in the form of a loan or an advance payment and is meant to help cover the costs of completing the task or project. Advances are used in employment when an employee may need financial assistance to cover expenses related to their work.
Advances can also be provided to businesses or organizations to cover costs related to a specific project or event. For example, a company may request an advance payment from a client to cover the costs of producing a product or providing a service. In this case, the advance payment is made before the work is completed and is meant to help cover the project’s upfront costs.
To receive an advance, individuals or organizations may be required to provide documentation or other information to the lender or funding source. This may include financial statements, budgets, or other information that helps the lender assess the risk of providing the advance. The terms of an advance, such as the repayment period and any fees or interest charges, are agreed upon in advance.
Difference Between Loan and Advance
- A loan is taken out for a general purpose, whereas an advance is provided for a specific purpose, such as to cover the costs of a specific task or project.
- A loan is repaid over a period of time, with interest and fees being added to the total amount owed, whereas an advance is repaid once the specific task is completed.
- A loan requires the borrower to provide a significant amount of documentation, whereas an advance may require less documentation.
- Loan approvals are evidently more rigorous, whereas the approval process for an advance may be simpler.
- Loans are larger amounts of money that are borrowed for a longer period of time, whereas advances are smaller amounts of money.
Comparison Between Loan and Advance
| Parameters of Comparison | Loan | Advance |
| Purpose | General Purpose | Specific Purpose |
| Repayment | Repayment with Interest and Fees | Automatic Repayment When Task is Done |
| Documentation | More Documentation | Less or No Documentation |
| Approval Process | Complex | Simpler |
| Amount | Larger | Smaller |