Term Loan

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Definition: Term Loan

Term loan is defined as the loan of a specific amount taken from a bank for a specific period and having a floating interest rate. The loan is repaid in regular intervals over the life of the loan. The loan period typically varies from one to ten years, though term loans are also available for a period as long as thirty years. Term loans for a period of less than three years are known as intermediate term loans and are repaid in monthly installments. Term loans for more than three years are known as long term loans and are repaid either quarterly or monthly. Long term loans are normally given against some kind of collateral. Term loans are either given to individuals or small businesses.


Example –

An individual takes a loan of Rs 10,00,000 from a bank for buying a flat. The loan period is 10 years and the interest rate is 12%. The entire principal amount of Rs 10,00,000 is due at the end of 10 years. The interest may be paid on monthly basis.



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