Under a term loan, a fixed amount is extended to a customer for a specified period of time. The amount received by the customer may be net of the interest charged or the gross amount. Repayment terms also vary; sometimes the bank only requires interest payment for a short period of time after which the principal portion is gradually repaid.
When a person takes a term loan, he borrows the money all at once and repays it in fixed amounts, or instalments, on a regular schedule, usually once a month. Term loans are paid off by a specific date. Example of term loans include car loan, student loan, renovation loan etc.
The characteristics of a term loan are as follows:
1. Interest on the loan may be based on a fixed rate throughout the term(period) of the loan or may be variable, that is, based on the prime rate of the bank.
2. Interest payment itself may vary, depending on the terms of the loan. It may be paid in proportion, with the repayment of the principal or it may be paid earlier, without payment of the principal amount or it may vary with the larger portion being paid earlier on in the term.
3. The loan amount may be paid in the following manner. Again, it depends on the agreement with the bank.
5. There are other charges payable such as an administration or arrangement fee, legal fees for preparing the loan agreement and commission or commitment fees if the bank agrees to keep the loan option open for a period of time pending the outcome of an uncertain event such as results of a tender.
The advantages of a term loan are as follows:
1. It makes planning easier as the borrower will know exactly how much and when to make the repayments of the loan.
2. The borrower can rest easy that the loan will be available for the agreed period of time whereas under an overdraft, depending on conduct of the account and circumstances of the business, the bank can insist on a reduction in the amount of overdraft facility originally given.
Just to inform all college students & graduates about the advantages of student loan consolidation from NextStudent, especially those who have student loans, such as: college students, graduates, Parents with PLUS loans, etc. Find out more about Student Loan Consolidation or Student loans from NextStudent.
When a person takes a term loan, he borrows the money all at once and repays it in fixed amounts, or instalments, on a regular schedule, usually once a month. Term loans are paid off by a specific date. Example of term loans include car loan, student loan, renovation loan etc.
The characteristics of a term loan are as follows:
1. Interest on the loan may be based on a fixed rate throughout the term(period) of the loan or may be variable, that is, based on the prime rate of the bank.
2. Interest payment itself may vary, depending on the terms of the loan. It may be paid in proportion, with the repayment of the principal or it may be paid earlier, without payment of the principal amount or it may vary with the larger portion being paid earlier on in the term.
3. The loan amount may be paid in the following manner. Again, it depends on the agreement with the bank.
- It may be in the form of a bullet repayment loan where the entire loan or principal sum is paid in full at the end of the term.
- It may be in the form of a balloon repayment loan where the amount of repayment is lower in the beginning and gradually becomes higher over the term of the loan.
- It may be in the form of an amortising loan where the repayment is equally spread over the term of the loan.
5. There are other charges payable such as an administration or arrangement fee, legal fees for preparing the loan agreement and commission or commitment fees if the bank agrees to keep the loan option open for a period of time pending the outcome of an uncertain event such as results of a tender.
The advantages of a term loan are as follows:
1. It makes planning easier as the borrower will know exactly how much and when to make the repayments of the loan.
2. The borrower can rest easy that the loan will be available for the agreed period of time whereas under an overdraft, depending on conduct of the account and circumstances of the business, the bank can insist on a reduction in the amount of overdraft facility originally given.
Just to inform all college students & graduates about the advantages of student loan consolidation from NextStudent, especially those who have student loans, such as: college students, graduates, Parents with PLUS loans, etc. Find out more about Student Loan Consolidation or Student loans from NextStudent.
