Explore the Term Loan and Its Key Features

A term loan is a type of lending agreement in which a borrower loans money at once and repays it in installments over a defined length of time. A typical financial tool used by individuals and businesses to finance a variety of requirements, from beginning a business to covering unexpected personal bills.

We'll go over the definition of a term loan, the different kinds (including short and long term loans), features, interest rates, and even resources like a term loan calculator. To help you understand the concept, we'll provide real-world term loan instances.

What Is the Meaning of a Term Loan?

A term loan is simply a loan that is repayable over an agreed-upon term or period, typically in monthly payments. It can be unsecured or secured, and it is commonly utilized for specific goals like equipment purchases, house improvements, or business expansion. 

Types of Term Loans

Term loans are commonly classified according to their term:

1. Short Term Loans

Term: Less than 1 year (occasionally up to 3 years)

Suited for: Financing immediate short term loan requirements such as cash flow shortfall, sudden medical bills, or SME requirements.

Typical platforms: Short term loans online are now readily available on websites and applications.

Availability: Short term loans in India have increased in popularity due to digital platforms.

2. Medium Term Loans

Medium of 1 to 5 years

Suited for: Funding purchase of vehicle, wedding costs, or working capital for SMEs.

3. Long Term Loans

Duration: Over 5 years

Suitable for: Purchasing a house, business growth, or significant capital outlay.

Characteristics of Term Loans

A few of the primary characteristics of a term loan are:

• Fixed Repayment Schedule: Monthly or quarterly payments.

• Interest Rate Options: Term loans can be either fixed or floating term loan interest rates.

• Loan Amount: The loan amount varies based on the creditworthiness of the borrower and the purpose.

• Collateral Requirement: Certain term loans (particularly long-term) could be secured.

• Flexible Tenure: Select short, medium, or long-term repayment periods.

• Availability of Online Tools: Apply a term loan calculator to calculate EMIs, interest, and repayment timeline.

Term Loan Example

Suppose a company avails a ₹5,00,000 term loan for 3 years bearing an interest rate of 12% annually. They will pay back the loan via EMIs. A term loan calculator may be used to calculate the monthly installment, total interest paid, and cost of loan.

Advantages of Term Loans

1. Easy access to money

2. Flexible use – business or personal

3. Adjustable loan period

4. Less interest compared to credit cards or payday loans

5. Quick approval for instant short term loan by online lenders

Term Loan Interest Rate

Term Loan interest rate varies based on a number of factors:

1. Loan type (secured/unsecured)

2. Creditworthiness of the borrower

3. Policy of the lender

4. Tenor of the loan

5. Borrower's income or business income

6. Online websites that provide short term loan in India

Conclusion

A term loan is an all-purpose financial instrument appropriate for both short and long-term purposes. Whether an emergency online short term loan or a long term loan for business expansion, knowing the term loan definition, its categories, interest, and repayment period will enable you to make an intelligent borrowing choice. Always compare rates and utilize a term loan calculator prior to applying.