Term Loan

Loans

Quick Definition

A Term Loan is a loan provided for a fixed amount and fixed tenure, which is repaid in regular installments (EMIs) over a specified period.

Detailed Explanation

A Term Loan is commonly used by individuals and businesses for specific purposes such as buying property, machinery, or expanding operations.

The borrower repays the loan in monthly installments, which include both principal and interest. These loans are regulated by the Reserve Bank of India.

Types of Term Loans

  • Short-Term Loan: Up to 1 year
  • Medium-Term Loan: 1 to 5 years
  • Long-Term Loan: More than 5 years

Key Features

  • Fixed loan amount
  • Defined repayment schedule
  • Interest can be fixed or floating
  • Secured or unsecured options available

Why Term Loan Matters

  • Helps finance large expenses
  • Enables business growth
  • Provides structured repayment plan

Risks & Considerations

  • Interest cost over time
  • Penalties for late payment
  • Requires creditworthiness

Example

"A business takes a ₹10 lakh term loan for 5 years and repays it through monthly EMIs."

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