Term Loan—Meaning, Types, Features and Interest Rates

A Brief Look into Term Loans

Term loans are an essential financial tool that provides borrowers with a lump sum amount to be repaid over a set period. With various types such as short-term, medium-term, and long-term loans, each comes with its own set of features and benefits. Understanding the types, features, and interest rates of term loans is crucial to making informed financial decisions.

This blog talks about everything you need to know about term loans, helping you choose the best option for your needs.

What is a Term Loan?

A term loan means a financial product where a borrower gets a fixed amount and repays it over a given tenure with set terms like interest rate, repayment schedule, and amount. Offered by banks and NBFCs, term loans serve purposes like asset purchase, debt consolidation, or business expansion. In India, their popularity is rising, with millions relying on loans for financial needs.

Types of Term Loans

Term loans can be broadly categorised based on their repayment period:

1. Short-Term Loans

Short-term loans typically have a repayment period of less than 1 year. These loans are usually offered with higher interest rates due to the short repayment period. They’re used for short-term financial needs, such as paying urgent bills.

What is a short term loan?

• Loan period: Less than 1 year
• Interest rate: Higher than long-term loans
• Used for: Emergency or immediate needs

2. Medium Term Loans

These loans are repaid over a period ranging from 1 to 5 years. They typically offer a balance between interest rates and the loan period, making them ideal for purchasing equipment or funding business growth.

Medium term loans are more flexible than short-term loans but come with a longer repayment period. These loans are commonly used for asset acquisitions, such as vehicles or machinery. For some cases, borrowers also opt for mini loans to cover smaller mid-term requirements.

3. Long-Term Loans

Long-term loans are repaid over a period longer than 5 years, with many offering terms of 10 years or more. These loans typically have lower interest rates compared to short-term loans, making them attractive for larger financial needs like home loans or long-term investments.

What is long term loan?

• Loan period: More than 5 years
• Interest rate: Generally lower than short-term loans
• Used for: Large investments, such as property

Features of Term Loans

Here are the key features to know:

• Fixed Interest Rate: Most term loans come with a fixed interest rate, making it easier to manage repayment.
• Repayment Schedule: A predefined monthly repayment schedule is a standard feature of term loans.
• Collateral: Some term loans may require collateral, particularly for larger loan amounts or longer tenures.
• Loan Amount: The loan amount is disbursed as a lump sum at the beginning of the loan term.

Advantages of Term Loans

Here is why you should choose a term loan:

• Predictable Payments: Fixed payments over a specific period make budgeting easier.
• Flexibility in Use: Term loans can be used for personal, business, or asset-purchase needs.
• Lower Interest Rates (for longer loans): Long-term loans often come with lower interest rates, making them affordable over time.

Interest Rates on Term Loans

The interest rate on a term loan can vary based on the loan’s type, tenure, and the borrower’s creditworthiness. Generally:

• Short-term loans carry higher interest rates due to their quick repayment period.
• Medium or intermediate-term loans offer moderate interest rates, balancing affordability and repayment time.
• Long-term loans have the lowest rates, but the total repayment amount could be higher due to the extended tenure.

In India, business loans—such as those offered through Airtel Finance Business Loan—usually feature competitive interest rates starting from around 14%, depending on the applicant’s creditworthiness, turnover, and business profile. Borrowers should pay close attention to their CIBIL score, as it directly influences both loan approval and the interest rate offered.

Final Thoughts: Why Term Loans Could Be Your Smart Financial Move

A term loan is a versatile financial tool that serves both individuals and businesses, offering structured repayment over a fixed tenure. With options ranging from short-term to long-term loans, term financing can be tailored to specific goals—whether it’s funding a business expansion, managing operational costs, or investing in assets.

Understanding the types, interest structures, and eligibility factors of term loans empowers borrowers to make informed and confident financial decisions.

For entrepreneurs and small businesses looking for a fast, flexible, and collateral-free solution, the Airtel Finance Business Loan is a smart choice. With quick digital approvals, and customizable repayment terms, Airtel Finance brings the power of term financing to growing businesses—minus the complexity of traditional lending.

FAQs

1. What are the types of term loans?

Term loans are categorised into short-term, medium-term, and long-term based on their repayment duration, from less than a year to over five years.

2. What are the features of a term loan?

Term loans feature fixed interest rates, predefined repayment schedules, and varying loan amounts depending on the borrower’s creditworthiness and loan type.

3. What is a short-term loan?

A short-term loan is a loan repaid within a year, often used for emergency expenses or small financial needs, with higher interest rates.

4. How are term loan interest rates calculated?

Interest rates on term loans depend on the loan’s tenure, the borrower’s credit score, and the type of loan taken.

5. What are the advantages of term loans?

Term loans offer predictable payments, flexible loan amounts, and competitive interest rates, making them ideal for personal or business financing needs.