Loans versus Discounts

Loans and discounts, in banking parlance means the same thing. These are amounts extended to person needing capita; or for some other purpose. The difference lies in the fact that loans are advances on which interest is collected at maturity. Such loans, however, are treated as discounts when the interest is deducted in advance.

Furthermore, the term "discount" signifies the accounting term that interest is paid in advance although not year earned. Hence, it is entered in the bank's book of accounts as unearned interest income. Discount could also be interpreted as a cash deduction on the regular price of goods as an attraction to buyers. But, as far a banks are concerned, it is nothing but a fund used to accommodate borrowers. A bank derives more advantages when it discounts the note rather than when the interest is collected at maturity because the amount of interest deducted in advance can again be used as available loanable funds.

Source: Banking Theory and Practice