What is Term Loan – Meaning, Types, Category, and Process

A Term Loan may be defined as a period-loan, or a time-loan approved and disbursed by a Bank, NBFC, or a Lending Institution. Such a time-loan may be a short-term loan or a long-term loan, that has to be repaid within a fixed period in regular payments, such as Equated Monthly Instalments, or EMIs. The interest payable may be at a fixed rate, or at a floating rate.

The term, period, or tenure of the loan may be between 12 months to 60 months. Banks and Non-Banking Financial Institutions offer such term loans as a variety of lending products, which include business loans, personal loans, home loans, education loans, gold loans, and automobile loans.

Types and Categories of Term Loans

  • Types of term loans are classified in terms of time-period as follows.
    • Short Term Loan
      A short term loan may be defined as a loan offered, approved, and disbursed by a lending institution for a short period of time ranging from 12 to 24 months.
    • Long Term Loan
      A long term loan may be defined as a loan offered, approved, and disbursed by a lending institution for a long period of time ranging from 10 years to 30 years.
  • Term loans are categorized in terms of security as follows.
    • Secured Loans
      A term loan may be categorized as a secured loan when the loan requires collateral security in terms landed estate, residential or commercial property, equipment, machinery, raw material, stock, or other assets. Secured loans as a rule are available at low rates of interest.
    • Unsecured Loans
      A term loan may be categorized as an unsecured loan when the loan requires no collateral or security. These types of loans are high-risk loans, and thus are available at higher rates of interest.

A term loan may be further categorized by the purpose of the loan. Thus, if you seek to avail funds or if you seek a loan for a business purpose, the purpose could be:

  • Business Expansion
  • Equipment, Machinery, or Raw Materials Purchase
  • Cash Flow
  • Working Capital Needs
  • Purchase of office, or Business Space, or Land
  • Rents and Salaries Payments
  • New Staff Hire
  • Debt consolidation

How does a Term Loan Work?

Term loans are determined by loan tenure or period of loan, interest rate, EMIs, etc., which make a term loan an easily manageable borrowing. By nature, term loans depend on:

  • Term of Loan
    The term of loan indicates the type of loan you can apply for in terms of repayment period. Thus, you could borrow a certain amount for a short term ranging from 12 to 24 months as short term loan, or you could avail funds for long term ranging from 10 years to 30 years as a long term loan.
  • Fixed Loan Amount
    When you borrow funds as a term loan, the loan amount remains fixed for the agreed loan period or tenure. As a borrower for business purposes, you can avail a term loan ranging from Rs. 50,000 to Rs. 100 Cr.
  • Rate of Interest
    If you plan to apply for a term loan, you could choose between a fixed-rate of interest, or a floating rate of interest, depending on your needs, and your financial status.
  • Secured or Unsecured
    Depending on your eligibility, you could apply for a short term loan, or a long term loan, with security or collateral, or without security or collateral.
  • Fixed Repayment Schedule
    When you know how much you have to repay, and when, you are in an advantageous position to plan your finances, you can choose a repayment option to suit your financial position. A term loan allows you to determine your repayment schedule by EMIs or Equated Monthly Instalments, which consists of both your principal amount and interest rate. To calculate your EMI, use Ruloans’ EMI Calculator.

Eligibility for a Business a Term Loan
To avail a term loan for business, you need to fulfill the following criteria.

  • Age
    You are eligible for a business term loan if you belong to age group of 21 years to 65 years.
  • Profession
    Professionals such as Doctors, Chartered Accountants, Architects, and self-employed non-professionals who are sole proprietors or partners can avail a term loan for business purposes.
  • Age of Business or Business Vintage
    Your business should be aged from 3 years to 5 years depending on whether you are a self-employed professional, or non-professional.
  • Credit Score
    A minimum credit score of 500 may be considered as good for a business term loan.
  • Annual Turnover
    Depending on your lender, the yearly turnover of your business should be over Rs. 1 crore, with bank stability of at least 6 months.

Talk to a Ruloans representative to advise you on matters of how to avail a Term Loan on 1800 2667576, for much more than money!

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