Financial institutions usually demand an amount of money that may cover the expenses of recovering loans from delinquent customers. This amount is called a LOAN CAUTION and is reimbursable to the customer in cases where no expenses have been incurred on loan recovery.
Whenever a loan caution is registered;
- The amount is debited to the customer account
- The amount is credited to the loan caution account
- The amount is credited to the customer account
- The amount is debited to the loan caution account
Loan Caution can be reversed anytime. Reversing the loan caution depends on the credit officer. But it should be noted that, the implications in FAQ 2 above will apply whenever the loan is reversed.
A loan guarantee in global bank is collateral that will back up a loan if it is not paid in time meanwhile a loan caution covers the banks expenses on loan recovery.