In the realm of finance, the term “Bank Charge” is a critical concept that often impacts both individuals and businesses.
In its simplest form, a bank charge is a fee that banks levy for various services they provide. These charges can be associated with routine transactions, such as withdrawals and deposits, or more complex services, like loans and overdrafts.
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What is Bank Charge?
Charge means wherein a transaction for value both parties evidence an intention that property existing or further shall be made available as security for payment of a debt and that the creditors shall have a present right to have it made available, there is a charge, even though the present legal right which is contemplated can only be enforced at some future date.
Though the creditor gets no legal rights of property, either absolute or special, or any legal right to possession but only gets the right to have the security made available by order of the court.
Fixed charge
A charge is said to be fixed if it is made specifically to cover definite and ascertained assets of a permanent nature or assets capable of being ascertained and defined, e.g., the charge on land and building or heavy machinery.
It precludes the company from dealing with the property charged without the consent of the charge-holder.
One of the key types of bank charges is a “fixed charge.” This type of charge is typically associated with assets of a permanent nature or assets that can be clearly defined.
For instance, a bank might place a fixed charge on a piece of land, a building, or heavy machinery a business owns.
This charge serves as a form of security for the bank, ensuring it can recover its money if the debtor fails to repay a loan. In this case, the debtor cannot deal with the property under the fixed charge without the bank’s consent.
Floating charge
A floating charge is a charge on the property which is constantly changing, e.g., stock.
The company can deal with such property in the normal course of its business until it becomes fixed on the happening of an event. Thus, it is a charge on the assets of the company in general.
Another type of bank charge is a “floating charge.” Unlike a fixed charge, a floating charge is associated with constantly changing assets, such as a business’s stock or inventory.
The debtor can deal with these assets in the normal course of business until a certain event occurs, such as the debtor defaulting on the loan. At this point, the floating charge “crystallizes” into a fixed charge, and the bank can claim the assets to recover its money.
How Do Bank Charge Work in the Real World?
To illustrate, consider a manufacturing company that takes out a loan to expand its operations. The bank might place a fixed charge on the company’s factory building and a floating charge on the company’s inventory.
If the company repays the loan as agreed, it can continue to buy and sell inventory as needed. However, if the company defaults on the loan, the bank can claim the factory building under the fixed charge and also seize the inventory under the floating charge.
Conclusion
Understanding bank charges is crucial for anyone dealing with a bank, whether for personal or business purposes. These charges can significantly impact the cost of banking services and the ability to manage one’s finances or run a business.
Therefore, it’s essential to be aware of the different types of bank charges and how they work. This knowledge can help individuals and businesses make informed decisions about their financial activities and navigate the banking system more effectively.
