What is Term Loan? A term loan is a short-term financial loan which is paid back within a specified period of time, usually in regular, installment payments. Regular installments are calculated by adding the balance of the loan plus the first and last month's payment together. Most term loans have a fixed interest rate which will continue to add extra balance to the loan after it is paid off, however in some cases a floating interest rate is used which changes periodically based on market conditions.
To make a more accurate comparison between different types of short-term loans it is best to calculate what is payable using Interest Rate tables, since interest rates can vary dramatically from one company to another, and even from one quarter to another. Most companies use a twelve month repayment schedule for their customers. There are two types of term loans, one being a closed-end loan and the other an intermediate term loan. A closed-end loan is when the loan repayment schedules terms are set up so that the entire amount of the loan is due at the same time, regardless of how much has been borrowed. Intermediate term loans are those where the repayment schedules are flexible, which allows the borrower to shift the repayment schedule around to suit their personal needs.
After the initial loan terms have been determined, the lender then makes an offer to the borrower. This offer is recorded in the lender's database along with other pertinent information regarding the borrower and their ability to pay, such as employment, credit history and their current cash flow situation. If the offer is accepted the loan will be made, and the money will then be deposited directly into the borrowers account. The repayment schedule is then agreed upon, and the lender is paid the lump sum amount in full on the agreed date. Once again this is not the case if the offer to approve the loan is rejected by the borrower.
