Term Loan Meaning
A term loan is a type of loan that is paid back in fixed installments over a set period of time. The loan amount and interest rate are fixed at the outset of the loan, and the borrower must make regular payments until the loan is repaid in full. It can be used for a variety of purposes, including business expansion, equipment purchases, home improvements, debt consolidation, and education expenses. The term can vary depending on the purpose of the loan and the borrower’s financial situation. For example, a business may take out a loan to purchase equipment, which could have a term of five to ten years. A personal loan may have a shorter tenure of one to three years. Term loan interest rate can either be fixed or floating.
Term Loan Types
- Short Term Loan: A type of borrowing designed to provide individuals or businesses with quick access to relatively small amounts of capital for a brief period of time. These loans typically have a repayment term ranging from a few weeks to a few months, making them ideal for addressing immediate financial needs or cash flow gaps. Short term loans are often used for purposes like covering unexpected expenses, managing seasonal fluctuations in business, or taking advantage of time-sensitive opportunities. While they offer the advantage of rapid access to funds, they usually come with higher interest rates compared to long-term due to the shorter repayment period. Borrowers should carefully evaluate their financial situation and repayment capabilities before taking out a loan to ensure it aligns with their needs and budget.
- Intermediate Term Loan: It is a form of financing option that gives companies the ability to borrow money for a period of time that is between one and five years, and the term can range anywhere from one to five years. These loans are an excellent option for businesses that are looking to finance specific projects, make equipment purchases, or better manage their working capital needs over a specific period of time. Businesses that are trying to fulfil their growth and operational goals without committing to long-term debt as this loans provide low interest rates and fixed repayment schedules, are the most flexible solution.
- Long Term Loan: Long Term Loans provide large amounts of capital to borrowers. These loans have long repayment periods, usually years or decades. They are often used to buy real estate, fund higher education, or start significant businesses. A major benefit is their lower monthly payments. These long-term repayment periods help borrowers budget their investment by dividing the cost over time. This loans frequently have lower interest rates, lowering borrowing expenses over time. However, it may require collateral and more extensive credit checks. Lenders face more risk over extended repayment periods. Borrowers should carefully analyse their ability to repay the loan and its terms and interest rates to guarantee they can achieve their financial goals. This loans are useful for individuals and corporations making large financial investments. They offer cheaper monthly payments and access to large amounts of cash, but borrowers have to pass a more strict application process and repay the loan over time.
Term Loan Interest Rate
The interest rate on term loans is classified into two categories. Fixed Rate of Interest and Floating Rate of Interest:
A Fixed ROI is a kind of interest rate that does not change over time. It means that the interest rate on a fixed-rate loan will remain the same for the entire term of the loan, regardless of changes in market conditions. Fixed-rate loans are often less risky than floating-rate loans because the borrower’s monthly payments will not change over time. However, fixed-rate loans can also be more expensive than floating-rate loans, especially if interest rates are high.
A Floating ROI is a kind of interest rate that fluctuates with market conditions. It means that the interest rate on a floating-rate loan can go up or down over time, depending on the loan’s fixed core interest rate. Floating-rate loans are often more risky than fixed-rate loans because the borrower’s monthly payments could increase if the underlying interest rate increases. However, floating-rate loans can also be more advantageous if the underlying interest rate decreases because the borrower’s monthly payments will also decrease.
Term Loan Features And Benefits
Tax benefits
Interest on is tax-deductible under Section 80C of the Income Tax Act, 1961.
Easy documentation
The documentation requirements are relatively easy to meet.
Wide availability
Offered from banks, NBFCs, and MFIs.
Flexibility
Loans are flexible in the loan amount, tenure, and repayment terms.
Fixed or variable interest rate
It can have either a fixed or variable interest rate.
Repayment Period
Tenure can last for a few months or several years.
Competitive interest rates
The interest rates are typically competitive.
Prepayment
It can be repaid fully or in part before the due date without any penalty.
Eligibility and Documents required for Term Loan
Note: This is an indicative list that may vary depending on your unique loan application.
- Eligibility
- Indian Resident.
- Business ownership
- The age limit for applicants is 21–70 years.
- A business with at least 12 months of operation.
- No previous loan default
- Documents
- Proof of identity: Pan Card, Aadhar Card, Passport, Driving License
- Business Proof: Udyam
- Address Proof: Telephone bill, Electricity bill or rental agreement
- Proof of income: Salary slip, Income Tax Return, Latest 1 year bank statement and GST
- Collateral documentation: If you need to put up collateral, you have to provide proof of ownership
Frequently Asked Questions
A term loan is a type of loan that is repaid in fixed monthly payments over a set period of time, typically 5 to 10 years. The interest rate on a term loan is usually fixed, but it can be variable depending on market conditions
Term loan is also called as "Demand loan".
Term loans are typically offered to businesses and individuals with good credit scores and a history of timely payments. The amount of the loan will depend on the borrower's financial situation and the purpose of the loan.
To request a term loan, visit our official website (securefinance.in) and fill out the online loan application form. Once the application is submitted, we will analyse it and get in touch with the applicant to continue with the remaining procedures. Applicants should select the appropriate loan programme based on their requirements.
The main risk of a term loan is that the borrower may not be able to make the monthly payments. If this happens, the borrower may default on the loan and have to pay late fees or penalties.
A term loan facility is a business loan that offers a fixed amount of funds for a certain use. The loan is paid back over time according to an agreed-upon repayment schedule. Term loans are usually used for equipment, real estate, or working capital. They typically last between one and ten years, but can last up to 30 years. Term loans often have an unfixed interest rate, which can add to the balance that needs to be repaid.
There are a few different types of term loans, including :
1. Secured term loans: These loans are secured by collateral, such as a car or a house. This means that if you default on the loan, the lender can take the collateral.
2. Unsecured term loans: These loans are not secured by collateral. This means that the lender has no recourse if you default on the loan.
3. SBA term loans: The Small Business Administration (SBA) offers a variety of term loans to small businesses. These loans typically have lower interest rates and more flexible terms than traditional term loans.
A term loan is a type of loan that is repaid in fixed monthly payments over a set period of time, typically 5 to 10 years. The interest rate on a term loan is usually fixed, but it can be variable depending on market conditions. A line of credit, on the other hand, is a revolving credit account that allows you to borrow money up to a certain limit and repay it as you need to. The interest rate on a line of credit is typically variable.
Purpose: Working capital loans are used for short-term operational needs, like managing cash flow, inventory, and daily expenses. Term loans are used for long-term investments, like purchasing assets or expanding operations. Repayment period: Working capital loans have shorter repayment periods than term loans. Collateral: Working capital loans are usually unsecured, while term loans may require collateral. Loan amount: Term loans provide larger loan amounts than working capital loans. Repayment terms: Term loans are usually extended for a longer duration of time, ranging from 1 year to as long as 30 years.
Some of the term loan examples are Personal loans, Business loans, Auto loans, Education loans, Gold loans, Home loans