What Is A Term Loan?

Posted on May 23, 2017

For those out there who have never heard of a “term loan”, it is a monetary loan that is remunerated in regular payments and over a set period of time. Term loans can last in some cases between one and more years, but can also last as long as 10 years or more in some cases. A term loan will normally involve an undefined interest rate that will add additional charges to be repaid.

Term loans can be obtained on an individual basis, but are more frequently used for small business loans. The capacity to repay over a long period of time is advantageous for a new or expanding business adventure, as it is assumed that they will make an increase in profits over time. Term loans are a good way of rapidly increasing capital so as to raise a business’ supply capabilities or scope. For example, some farmers contact Lease Corp for farm machinery loans to buy equipment like tractors or other farming vehicles or rent more land for their business operations.

Fixed or Floating Interest Rates

Something thing to think about when obtaining a term loan is whether the interest rate will be what is known as fixed or floating. A fixed interest rate anticipates that the percentage of interest will never increase, in spite of the financial market. Low-interest periods are normally an excellent moment in time to take out a fixed rate loan. Whereas, floating interest rates will fluctuate along with the market, which may be good or bad for the borrower depending on what goes on with the global and national economy. Due to some term loans lasting for 10 years, hoping that the rate will stay consistently low can be a real chance taker.

Also think about whether the term loan you will be looking at uses compound interest. If indeed it does, the quantity of interest will be periodically added to the standard borrowed amount, which means that the interest will keep on getting higher the longer the term lasts. Should the loan use compound interest, look to see if there are any penalties for an early repayment on the loan. If you happen to obtain a windfall, or profits spectacularly increase, you might just be able to pay off your total balance before due payment, which in turn prevents you from paying any extra interest by waiting for the loan term to end.

Income Increase Can Help on Interest

Some lease companies provide a variety of repayment plans for term loans. Usually, you can choose to pay off the debt in even amounts, or the amount you pay can gradually increase over the loan period. If you expect that you will be more financially sound and able to repay in the future, choosing an incremental increase may help you to save on interest.

For further information, contact a respectable leasing company and let them know exactly what you are looking for.

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