The Duration of Term Loan & it’s Meaning in Full Brief

author-img By Arina Smith 5 Mins Read 11 September 2023

term loan

Streamlined financial schemes such as retail lending are considered as one of the leading reasons behind the growth of India’s economy.

Available as a term loan, the financing accompanies various other benefits like subsidies via dedicated schemes.

Term loans have correspondingly financed the household sector, steadily nudging it away from stagnancy. Take a look at the essential growth figures that indicate a robust economic outlook for the country.

  • The nominal GDP growth of India for 2019-20 was estimated at 12%.
  • MSMEs’ contribution to India’s GDP stood at 29%.

Further, household debts grew at an annualised rate of 13% in 5 previous years, accounting for 11.2% of India’s GDP.

Term loans have a crucial role to play in channelising these funds, thus allowing various sectors in the economy to fulfil their financial requirements.

Term loans – Meaning, scope and duration

Term loans are advances that come with specific duration and a fixed repayment schedule. Borrowers need to repay these advances within the stipulated period or tenor along with interest charged on the loan amount.

Preferably used in the context of business finance, term loans have three categorisations. The segregation stems from the duration these loans are available for.

  • Short-term loans

The advances are available for a period of 12 months to 18 months. Depending on the lender’s criteria, some short term loans are also available for a tenor extending up to 60 months.

Borrowers seek these advances to fulfil immediate funding needs which can be conveniently repaid within a short duration. You can use a term loan calculator to choose a suitable loan amount and tenor for your short term advance.

  • Medium-term loans

A medium-term loan is usually classified as an advance with a tenor ranging between 3 to 5 years. Individuals can avail medium-term loans to meet their high-value funding requirements as they come with substantial ticket size.

Entrepreneurs opt for medium-term loans as their preferable funding option due to a suitable repayment tenor and collateral-free financing.

Also, they can conveniently meet big-budget expenses like machinery purchase, business expansion, additional working capital requirement, etc. with the amount.

  • Long term loans

A long term loan is available for a duration exceeding 5 years, and that can go up to 25 years. Businesses seek these funds to invest in their venture for an extended-term. A long tenor allows enterprises to make lump sum investments and repay conveniently.

Business loans are a typical example of term loans extended by several financial institutions in the country.

Loans offered by lenders like Bajaj Finserv also come with unique features that make financing simpler. Plus, their term loan calculator enables convenient estimation of the tenor and loan suitability.

They also bring pre-approved offers that make financing hassle-free, convenient, and less time-consuming. You can avail these offers on several financial products, including business loans, personal loans, home loans, etc.

As for term loans, they have gained popularity over the years in the industrial sector for their easy accessibility as well as convenient repayment terms.

  • Term loans from foreign banks witnessed a growth of over 35% in March 2018 and 2019 consecutively, as per CEIC data.

Working of term loans

While multiple financing options are available in the market, term loans are convenient to avail and manage. They come with a pre-determined loan amount, a repayment schedule, competitive interest rates, and affordable EMIs.

The working of term loans can thus be explained as follows. When availing a term loan, you need to determine a suitable amount to avail based on funding requirements.

Repayment is to be made via EMIs over the tenor chosen. Depending on the amount availed, you may or may not be required to provide collateral.

For example, some of the renowned lenders in the market provide collateral-free term loans of up to Rs.30 lakh for businesses. These business loans help keep your enterprise financially healthy.

Take the help of a term loan calculator to determine suitable loan amount and tenor for repayment.

Term loans are a popular source of finance that can suitably fulfil debt demands from across industries and sectors.

  • The debt demand from the MSME sector singularly stands close to Rs.70 trillion.

When availing a term loan, make sure to compare lenders to check out the most beneficial offers provided with affordable interest rates. Select a suitable option after making a comparison of long term vs short term business loan.

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Arina Smith

I enjoy writing and I write quality guest posts on topics of my interest and passion. I have been doing this since my college days. My special interests are in health, fitness, food and following the latest trends in these areas. I am an editor at OnlineNewsBuzz.

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