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About Term Loan

As the name suggest it a type of loan for linger duration usually last between 1 year to ten years even lasted for thirty years in some cases. The nature of term loan is secured as the loan seeker or the borrower has to serve the asset purchased from money of term loan as a primary security and have to mortgage the company asset as a secondary security. The amount of loan has to be payback to the lender/financial institutions or banks with in the given period of time regardless the condition and situation of the firm like weather the firm is performing good or not performing well. The interest rates of term loan can be fixed or floating completely depending upon market situation.

Purpose of term loan

The term loan is usually given to small business to use loan money for future growth but can be given to individuals. The best part of this loan is the time of repayment which usually very long that attracts many customer, they feel easy and comfortable in repaying the term loan as the long term decrease the monthly installments with a belief that in long term they will their business profit which put them in condition in which they will be financially strong.

Important Points about Term Loan

  • The main point to make into consideration is the interest of the term loan one need to check weather the interest of the loan is floating or fixed , if the rate of interest is fixed then that signifies that the rate of interest will never fluctuate irrespective of the market situation which is good thing for borrower. If the rate of interest is low then it a very good time for customer take term loan, but if the rate of interest is fluctuating or floating then it might be good or bad that completely depends upon market situation.

  • Sometimes the rate of interest is compounded if it is so then the amount of interest will be added to principle loan amount means the rate of interest will become high as the repayment of loan will for long term

  • It is very important to check weather there is any penalty in early repayment of loan if in case you want to pay the loan amount early before time it will saves lots of money will end up paying for waiting loan term to end.

Features of Term Loan

Some of the features of the term loan are listed below:

  • As it is secured loan, the borrower has to serve the assets purchase from the loan amount as primary security and the other assets of the firm will have to kept as mortgage as secondary security.

  • The loan amount has to be payback within given period of time irrespective of the market situation

  • The rate of interest can be negotiated between the lender and the borrower at the time of giving the loan, the rate of interest of the loan is decided after evaluating the risk and the tenure of the loan

  • The time period for which the loan is given ranges between five to ten years some time it might goes up to thirty years. The tenure of loan repayment can be negotiated in case of financial emergencies.

  • There may be penalties imposed by financial institutions in case of payment defaults

Advantages for Term Loan

Some of the advantages of term loan are mention below

  • The term loan considered to be a cheaper loan for loan seeker

  • The borrower can avail the tax benefits as the amount of interest paid by the borrower in the term loan is tax deductible

  • The terms and conditions of the term loan can be negotiable

  • For financial institution it is risk free as the borrower has already mortgage their assets as security

  • It is source of regular income for financial institutions as the borrower have repay the loan amount regularly.

Eligibility for Term Loan

Eligibility criteria for the term loan:- There are quite few eligibility criteria for term loan such as

  • Income of loan Borrower:- It is one of the most important factors in getting any loan, higher the income of an individual more is the chance for loan approval.

  • The rate of interest:- Generally it is of two types A. Fixed B. Floating, lower the rate of interest higher the chance of loan approval.

  • Duration:- It effect both EMI, as well as the probability of loan approval, longer the duration of loan lower, will be the EMI's and higher will be the chances of loan approval.

  • Relevant Business experience:- This is very important factor in getting a business loan if your business is doing well from past 3-4 yeas and shows stable growth then the chances for approval of loan will be higher on the side. Almost all the bank prefers stable business as well sustainable growth.

  • Tax Benefits:- There are several tax benefits enjoyed by the borrower when they opt for a term l loan. The loan amount can be used for different purposes like working capital or for buying equipment and inventories and also for personal use. As in term loan the borrower enjoys the flexibility in loan repayment time period in case of financial emergencies

    Some of the tips for Loan:- It is very important to keep these points in mind before signing any agreement of any loan, these are mention below

  • The rate of interest:- It very important to know about the rate at which the loan is given to, kindly do ask your lender about interest rate whether it is fixed or floating and chose according to and wisely.

  • Margins and down payments:- Different financial institutions have different down payment so before making any agreement kindly do ask about down payment, some have as low as 5% of the total loan amount and some have as high as 20-30%, and there is always a scope of negotiations.

  • Extra Charges may be levied at the time of loan disbursement:- There are different charges for loan requirements so do ask your lender before making any agreement, some of the charges are

    • Processing fee

    • Loan Origination fee

    • Administrative charges

    • Late payment charges

    • Charges of changing from floating to fixed interest rate.

    • In case of loan payment default

Banks dealing in Term Loan

Major Banks dealing in it: - Almost all the major banks in India dealing in these types of loans, some of the major bank those who are dealing with it are listed below

  • HDFC LTD

  • HDFC BANK LTD

  • AXIS BANK LTD

  • ICICI BANK LTD

  • YES Bank

  • State Bank of India

  • Bank of Baroda

  • Standard Chartered Bank

  • India Bulls Finance

  • Aditya Birla

  • DBS

  • Kotak Bank

  • Edelwise

  • DHFL

  • PNB Hosing Finance

  • Tata Housing