What are the uses of overnight loans? As far as I understand an overnight loan is a loan that is settled the next day.
Who are the entities that would find it useful to take a loan just for a day? and, what would they use an overnight loan for?
Main users of overnight lending are banks. Banks have large in- and out-flows from customers on a daily basis. They typically borrow to meet a temporary outflow.
There is a term premium for borrowing at longer terms. By implication, borrowing overnight is theoretically the cheapest financing cost. Financial entities will borrow overnight to finance portfolios.