What are the main difference between bank loan and overdraft?

There is difference between bank loan and bank overdraft. When bank gives a loan the amount of the loan must be debited to the bank column of the cash book from where it is posted to the credit of bank loan account.

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Where an overdraft arrangement is made with the bank the client is permitted to overdraw his account up to agreed limit as per his requirement. Interest charged in such case by the bank i.e. calculated on daily balance overdrawn. The bank overdraft will appear as the credit balance of bank column in the cash book.

Both (bank loan and bank overdraft) represent business liabilities but loan is long term liability whereas overdraft is a short term liability.

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