What Is a Term Loan – Types, Example & Steps to Apply Online

The rise in the cost of living and uncertain life events like the sudden Covid-19 pandemic has led to financial exigencies for many people in India. This has led to the increasing popularity of various types of loans, including term loans. A Term Loan refers to a short-term loan or long-term loan that is provided by financial institutions, for which EMI (Equated Monthly Instalment) has to be paid over the tenure of the loan. Let us explore term loan and their types to understand why it is popular among borrowers.
 

What is a Term Loan?

A term loan or demand loan is a useful loan option helping with business expansion or expenditure. Term loans offer both fixed and floating rates of interest. Based on the need for a term loan, the repayment period can be set between 1 year – 10 years. Term loan tenure could be further extended on a case-to-case basis depending on the lender and the borrower profile. This loan type includes business loans, personal loans, home loans, education loans, and the like. These can be utilized for various purposes like business expansion, buying machinery, managing working capital, and so on.

Types of Term Loan

There are different types of term loans available based on borrower funding requirement, repayment capability, and funds availability:
 

Short Term Loan

A short-term loan is normally offered for a tenure between 12 – 18 months, though lenders could extend the tenure based on the borrower’s credibility. Short-term loans are availed to meet their immediate funding requirements. A working capital loan is an example of a short-term loan that is availed for meeting day-to-day business expenditure and is repaid within 12 months from the date the loan was disbursed.

Intermediate-term loan

Intermediate-term loans are available for a tenure between 2 years – 5 years. Such loans could be availed by new businesses’ for managing their company’s cash flow. They are used for funding assets like computers which normally have an economic life of 3 – 5 years.

Long-term loan

Long-term loans are available for a long period between 5 years – 10 years. Long-term loans are always given against a collateral of the company’s or individual assets. These loans normally carry a fixed rate of interest with repayment tenure varying between monthly – quarterly as per the borrower’s need basis. Long-term loans are useful when there is major capital needed for purchasing equipment that forms a part of the manufacturing process. An example of a long-term loan is a home loan, education loan, machinery loan, etc.

Short-term loans and intermediate loans are also referred to as balloon loans as they entail balloon payments. The final installment on such loans is normally higher than the earlier loan installments, so they are called balloon loans.
 
To apply for a term loan or term financing, borrowers should visit an instant loan app or a lending website. Compare from reliable loan apps available for easy download on Google Play Store. If the loan gets approved, then the requested loan amount is disbursed in the borrower’s bank account in the defined duration that varies from lenders.
 
For instance, HeroFinCorp, powered by Hero FinCorp, one of the fastest-growing NBFCs in India, is one such secured digital loan platform that offers collateral-free personal loans at low-interest rates. A borrower can thus transfer their loan to such lenders so as to reduce their total debt.