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Term Loan

Term Loan – Meaning, Types and Features and Interest Rates

The various forms of personal loans and easy repayment schemes have made the world a better place. Whenever you have a cash crunch or need loans to fulfil your immediate requirements, you can simply search for the best type of loan, read through all the terms and conditions, and become a customer. Additionally, the easy EMI repayment feature has also made it very easy for people to pay back their loans. Term loans are one such form of short-term loan, which needs to be repaid to the bank or the lender within a stipulated time.

Term loans are usually used by businesses and may or may not require collateral. In this blog, take a closer look at what is meant by a term loan and how it can help you.

What is meant by a term loan?

There is a slight difference between a personal loan and a term loan. When you apply for a personal loan, you can get it without any questions asked. However, in the case of a term loan, the amount sanctioned can be used only for a specific purpose. For example, to purchase a specific item for your business. This type of loan gets its name as a ‘term loan’ because customers have to pay it back within a fixed term, ideally ranging between 2 to 10 years.

Read more: What is a personal loan?

What are the types of term loans?

Term loans can be classified into three major types:

  • Short-term loan
  • Long-term loan
  • Intermediate term loan

Let us go through what they stand for:

Short-term loans

  • Usually provided for a period of 2 years or 24 months
  • Provided by banks or credit lending agencies to those who are not eligible for long-term credit

Long-term loans

  • Companies or businesses will have to provide some collateral in exchange for a long-term loan
  • Tenure for long-term loans usually varies from 5 years to 10 years
  • Repayment options can be either monthly or quarterly
  • The repayment schedule also depends on the company’s cash flow and profits

Intermediate term loans

  • These loans are best for companies that have just been formed and are looking for a way to maintain cash flow
  • The loan tenure in such loans varies from 2 to 5 years

If you are looking for a term loan to fulfil your business needs, then choose the type of term loan that would best match your ability to repay and your requirements.

Read more: What is the minimum salary needed to get a personal loan?

What are the benefits of term loans?

Want to apply for a loan for your business but not exactly sure how a term loan can help you? Here are some of the best benefits of term loans that can help you to change your mind:

  • Low on cost – Term loans are very popular with businesses because their short-term and medium-term offerings are the least expensive.
  • Negotiable – Term loans are mostly negotiable. If you have a good relationship with the lender or the bank, then now is the right time to negotiate a favourable term of repayment.
  • Hassle-free – the application procedure for term loans is very simple and does not take a lot of time to process.
  • Tax Benefits – Term loan borrowers also enjoy plenty of tax benefits. Check out the income tax act rules by the Government of India to get a better idea.

Which banks provide term loans?

Since term loans are very popular, there are many private sector as well as public sector banks that provide term loans to customers. To ensure that you are getting the best deal, make it a point to compare all of your term loan offers side by side.

Read more: Top 7 benefits of personal loan that you should know!

What are the eligibility criteria for term loans?

Here are the eligibility criteria needed to apply for term loans:

  • The age of the term loan applicant must be between 18 and 65
  • It is important that the loan applicant must have a CIBIL score of 750 or above
  • A good history where the borrower has consistently repaid debt and creditworthiness also acts in favour
  • There should not be a history where the applicant has defaulted on payments to any lender
  • The loan applicant also needs to have a regular source of income

NOTE: Keep in mind that the eligibility criteria can change from one bank or lender to another. However, these are a broad section of eligibility criteria that will certainly make it easier for you to get your term loan.

We hope you are now clear about what is a term loan and how you can use these loans for your benefit.