Loan Terms Explained

LOAN

The term of a bank loan refers to the period over which the full loan amount will be repaid. There are a number of variables that are taken into account by your bank or other loan provider in determining the repayment term.

1. Short Term Loans

Loans that are repaid over a few months are considered to be short term. The loan amount is normally small and relative to the income or ability of a person to repay the amount quickly. Short term bank loans include:

– Private Loans
– Cash Advance Loans
– Quick Cash Loans

The approval process for short term loans is normally very fast and requires no security or to specify what the loan amount will be used for. As long as you are able to prove the ability to repay the loan, the amount should be approved.

However, there are a number of disadvantages involved with short term loans. The short term nature of the loan means that the loan provider has less time in which to make a profit resulting in a higher interest rate and additional service or admin fees. Late or non-payment could result in penalties or the entire settlement amount becoming due immediately.

2. Medium Term Loans

Repayment terms for medium term loans are normally within the range of 2 to 3 years. The interest rate is slightly lower than for short term loans. The term for a medium term loan is often due to the inability of a debtor to afford repayments for a short term loan amount where an extension is offered.

3. Long Term Loans

Long term loans are mostly offered for business requirements or to purchase a specific asset:

– Business loans that have a repayment period of over 10 years need to be repaid from the proceeds of the business. The loan provider may require some form of guarantee or security in the form of business assets or a guarantee from a private person or entity that the loan will be repaid.
– Vehicle finance is also considered to be a long term loan with a term that can extend from 5 to 10 years. You may be required to provide a deposit of between 10% and 20% for the loan to be approved. The vehicle that you are purchasing provides collateral for the loan which means it will be re-possessed should you be unable to fulfill your obligation.
–  Mortgages or property finance are long term loans that could have a repayment period from 20 years and up. The approval of these large loan amounts may also require an upfront payment and the property will stand as security for the loan.

In choosing a suitable term for a loan amount, it is important to weigh up the following:

– Your requirements for the funds;
– The amount you require;
– And most importantly, your ability to afford the monthly repayments over the set period.

Your loan provider should be able to assist you in determining the best repayment term to suit your needs.