A term loan is a loan that is given for a fixed duration of time and must be repaid in regular instalments, also known as EMI (Equated Monthly Instalment). These loans are usually extended for a longer duration of time which may range from 1 year to as long as 30 years. The rate of interest charged under these loans is not fixed and depends on the market conditions. These are taken by either small businesses that have sound financial statements or by individuals.
Now that you know the Term Loan meaning, read the following article to get a better understanding of what is a term loan, its features and its advantages.
There are basically three types of term loans, short-term, intermediate-term, and long-term.
Short-term loans are generally taken by people who are facing unexpected cash shortages or to consolidate some loans that require cash urgently.
Intermediate long terms are taken for a period of around 2 to 5 years and require a little planning.
Long-term loans are generally taken for purchasing real estate or investing in some businesses etc. These require some mortgage that is kept as collateral and is only provided for less risky investments.
Various factors affect term loan eligibility. Term loans depend on the background of the people who are seeking loans, the borrower’s credit score and how many projects they have done. It also depends on the business plan that the lender has. The lender has to be convinced that the idea is feasible and that it can generate handsome revenues. Another important thing is the type of mortgage that is being offered as collateral. If it's a business then the credibility of the business, the financial performance and the operational effectiveness are also kept in mind while giving a term loan.
Also Read: How To Get A Personal Loan Without Collateral
A predetermined monthly payment paid by a borrower to a creditor on a predetermined date each month is known as an equated monthly instalment (EMI). The loan is repaid in full over a number of years by making monthly payments on the principal and interest. Typically, EMI debtors are only permitted to make one fixed payment every month. An EMI is advantageous to borrowers since it makes personal financial planning simpler because they know exactly how much they will have to pay each month toward their loan. Loan interest benefits lenders since it offers a reliable and consistent stream of income. This is the key characteristic that sets term loans apart.
Business Loan EMI calculator helps you in keeping a track of monthly instalments in the form of EMIs that you need to pay to the creditor. For business loans in India, Poonawalla Fincorp provides a free Business Loan EMI Calculator to make loan planning simple. With it, you can calculate business loan EMI, know the total interest outgo, and access the amortisation schedule for deeper insight into repayment. Here are the few steps you can follow to calculate your business loan EMI.
There are several benefits of term loans that attract borrowers to avail of a term loan. Term loans are offered at attractive interest rates by banks and NBFCs due to the highly competitive market. Apart from the rates offered by lenders in their brochures or on their websites, you can negotiate for a lower interest rate if you have a good credit score. A healthy credit score increases your chance of getting a lower interest rate.
Term loans also help in increasing the cash flow of businesses. It reduces the burden of capital required to be maintained by businesses.
Additionally, you can also choose the type of interest rate based on the market cycle. Usually, it is advisable to choose floating interest rates when interest rates are higher. This way, you can be benefited in the long run, anticipating that rates may moderate over time. For short-term loans, a fixed rate of interest is preferred.
‘What is term loan’ is one of the most commonly asked questions by borrowers. The term loan definition states that it is a loan from a lending institution (bank, NBFC, etc.) with a fixed tenure, a pre-determined interest rate and a repayment schedule. Term loans range from 1 year to a maximum of 30 years. There are three types of term loans which are further categorized as short-term loan, intermediate-term loan and long-term loan. These different types have different repayment tenures.
Term Loans are classified into three different types:
Long-term loans are loans with more than a 3-year tenure. For a long-term loan, the tenure ranges from 3 to 30 years. The period is pre-decided between the borrower and lender before loan approval. A long-term loan generally consists of a large amount that requires a long period to pay off.
A good credit score is a must to avail of a term loan as it determines the creditworthiness of the borrower. Alongside this, a good credit score helps borrowers in getting a lower interest rate and a longer tenure. Before your loan approval, a lender has to ensure that you have a sound financial background to avoid any delay in repayment or to avoid a default. To avail term loan quickly, you need all the documents required for term loan including KYC documents, bank statements of 12 months, minimum turnover requirement, and other required documents. If you have all the documents required for term loan ready with you, approval and disbursal will be quicker.
A term loan is repaid in fixed monthly payments or EMIs. The EMIs are debited from the borrower’s account on a pre-decided date every month. In case the borrower has extra funds, they can pay the extra amount over and above the EMI. This is called partial prepayment and is a good way to reduce your future payment burden.
Term loans are of different types based on their utility such as - Personal Loan, Education Loan, Home Loan, Car Loan, etc. In each case, the duration, loan amount, interest rate and repayment terms differ. Based on the presence or absence of collateral, loans can be classified as secured or unsecured. Examples of secured loans are Home Loan, Car Loan, Loan Against Property, etc. Examples of unsecured loans are Personal Loan, Business Loan, Professional Loan, etc.
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