Loan Accounts is customers who require a more permanent type of account borrowing. They can go for a loan instead of an overdraft. Here are the details.
Understanding Loan Accounts
A bank loan is a fixed amount of money borrowed by a customer on the condition that the amount is repayable in whole or in parts after an agreed period of time.
Applying for A Loan Simplified
It is therefore not repayable on demand, although the borrower may opt to repay the loan earlier than the agreed period.
Unlike an overdraft, a loan is a more formal type of borrowing. This type of borrowing requires a formal application and other needed documentations.
A formal loan agreement is also written; with this, the terms and condition of the said loan are stipulated.
Steps Required In Accessing A Loan Accounts
It often involves several approval stages from branch levels to regional office levels and sometimes to the head office level and board of directors.
It also requires detailed credit investigations and analysis.
Branch Loan Applications
Branch managers still have an important role to play in handling loan accounts applications.
For a bank that has many branches, branch managers are authorized to use their discretion to an extent and the bank to a loan proposal.
Explaining the rationale for this, a scholar named Fiddler and Freeman stated that one should understand that not all the bank branches has equal size, also they all do have their business complexity.Fiddler and Freeman
This goes on to tell that each bank manager will have a different level of operational power that determines the managers responsibility as well as the bank manager’s seniority.
Regional Loan Application
Only those loans application that exceed the branch manager’s discretion are referred to the regional manager of the bank or better still to the banks head office for further clarifications.
Loan Account Examples
Here is a simple example of all that has been said above:
Mr John applied to Bank of America for a loan of $150,000.
The loan was approved for Mr John’s withdrawal on the 1st of May 2000. Showing the entries to be made in the bank’s accounting books.
Mr John issued his first cheque for $130,000, which was presented for payments on the 2nd of May, 2005.
The entries required is that the bank will have to debit Mr John loan account and then credit the same Mr John’s current account.