Definition of Call Loan - Examples, Uses and Facts


Key Takeaway:

  • Call loans are short-term loans that are repayable on demand by the lender. They are usually used for capital funding and have a higher interest rate than other types of loans.
  • Demand loans and notice loans are the two main types of call loans. Demand loans are required to be repaid immediately, and notice loans require a notice period before the loan is due.
  • Call loans can be used for many purposes, including business loans, securities trading, and personal loans. However, due to the higher interest rates and the risk of repayment on demand, call loans are best suited for short-term, emergency funding needs.

Are you searching for a type of loan that can help you in financially challenging times? Look no further, call loans are just what you need! This article will detail all you need to know about call loans and their uses.

Call Loan Definition

A call loan, also known as a demand loan, is a type of loan that stipulates repayment at any time upon demand by the lender. The borrower may not have a predetermined date for repayment. Interest is payable on the outstanding balance up until the loan is repaid. This type of loan is mainly used by financial institutions in the form of margin payments, which enable securities dealers to leverage their assets.

Call loans are usually given without collateral. They are also unsecured and therefore carry a higher interest rate than loans backed by collateral. Furthermore, call loans are typically short-term, lasting from a day to a few weeks.

One of the unique aspects of a call loan is its flexibility. The lender can demand repayment at any time, making it ideal for borrowers who require a short-term loan but are uncertain about their ability to repay at a set date. Additionally, lenders may use call loans to take advantage of higher interest rates and to quickly recoup their funds.

If considering a call loan, borrowers should be mindful of the high interest rates and the potential for the lender to demand repayment at any moment. To mitigate risks, borrowers can maintain a good credit rating and avoid borrowing amounts beyond their ability to repay.

Types of Call Loans

In the world of finance, there are various types of financing, one of which is call loans. This financial instrument can also be classified into different categories based on their features, nature, and usage. Here is a breakdown of the different types of call loans in the financial market.

Type of Call LoanDescriptionOverdraft Call Loans Borrower is given the ability to withdraw funds exceeding their balance without prior notice, with interest rates charged on the excess amount. Secured Call Loans Loan secured against goods, properties, or other assets offered by the borrower, providing a layer of collateral for the lender. Unsecured Call Loans Credit instrument issued without any form of collateral, with the borrower's credit score and reputation serving as the primary basis for repayment.

Apart from these common types of call loans, there are other variations such as demand loans, term loans, and revolving credit lines that serve different purposes in the financial market.

Interestingly, call loans were once a popular form of financing during the early 20th century but fell out of favor during the Great Depression. It was only after the Federal Reserve System was established that call loans were reintroduced to regulate the market. Today, call loans remain a valuable instrument for corporations and entities seeking flexible short-term financing.

Examples of Call Loan Uses

Call Loan Uses in Various Situations:

Call loans are used to cater to the sudden financial needs of the borrower for a short period of time. Here are some instances when they can be used:

  • Meeting temporary capital requirements
  • Borrowing for short-term projects
  • Paying back unexpected costs/financial emergencies
  • Handling cash flow between investment opportunities

It is important to note that call loans are usually accompanied by higher interest rates and require strict adherence to repayment schedules.

Call Loan Benefits Beyond Quick Capital:

Apart from providing quick capital, call loans provide the borrower with the opportunity to build or improve their credit score. In case of responsible repayment, call loans can contribute positively to the borrower's credit history, making it easier to access other types of credit in the future.

According to Investopedia, call loans are a popular type of loan for stock market investors looking to finance the purchase of additional securities.

Five Facts About Call Loan - Definition, Examples and Uses:

  • ✅ A call loan is a type of loan that can be recalled or called in by the lender at any time, without prior notice to the borrower. (Source: The Balance)
  • ✅ Call loans are often used in financial markets to provide temporary funding for investors to buy securities. (Source: Investopedia)
  • ✅ The interest rate on call loans is typically very low compared to other types of loans. (Source: The Street)
  • ✅ Call loans are usually short-term in nature, with repayment expected in a matter of days or weeks. (Source: WiseGeek)
  • ✅ Call loans can be a risky form of borrowing for the borrower, as the lender may recall the loan at any time, potentially causing financial strain. (Source: The Balance)

FAQs about Call Loan - Definition, Examples And Uses

What is a call loan?

A call loan, also known as a demand loan, is a type of loan that can be called in by the lender at any time, without prior notice. These types of loans are typically short-term and have higher interest rates than other types of loans.

What are some examples of call loans?

Some examples of call loans may include a line of credit from a bank or a margin loan from a brokerage firm. These types of loans are often used by businesses or investors to meet short-term funding needs or take advantage of investment opportunities.

What are the uses of call loans?

Call loans can be used for a variety of purposes, including funding short-term business expenses, covering unexpected expenses, or taking advantage of investment opportunities that require quick access to cash. These types of loans can be useful for borrowers who need funds quickly or who have fluctuating cash flow.

How are call loans different from other types of loans?

Unlike other types of loans, call loans can be called in by the lender at any time, without prior notice. This makes them more risky for borrowers, as they must be able to repay the loan quickly if it is called in. Call loans also typically have higher interest rates than other types of loans, due to the increased risk for lenders.

Who typically uses call loans?

Call loans are often used by businesses or investors who need short-term funding to cover expenses or take advantage of investment opportunities. They can also be used by individuals who need quick access to cash for unexpected expenses or bills.

What are the advantages and disadvantages of call loans?

The advantages of call loans include quick access to funds and flexibility in terms of repayment. However, the main disadvantage is that they can be called in by the lender at any time, which can be risky for borrowers. Additionally, call loans typically have higher interest rates than other types of loans.