What is a Term Loan?
A term loan is a type of loan that can be used for personal purposes and is paid back over a set period. The loan is usually paid back in regular payments that include both principal and interest.
A term loan is suited to borrowers who require financing to make a one-time upfront payment in order to purchase a specific item or service. The bank lends the amount for the purchase to the borrower and the borrower repays the bank over a specified period with interests.
Things you should consider before applying for a term loan:
The original amount of money borrowed from the bank without fees or interest.
The fee the Bank charges to borrow money. The interest terms will be set out in your Facility Letter. Interest may be variable or fixed and failure to make regular timely payments may result in a Default Interest Rate being applied to the loan. All interest rates are based on BCB's base rate plus the spread (cost of lending the money to the borrower).
The term is the length of the loan or the number of months or years until the loan is fully satisfied including fees and interest. It can range up to 5 years.
Fixed interest rate
A fixed interest rate is agreed between the bank and the borrower at the start of the agreement, and runs for a stated period.Under a fixed interest rate the borrower's monthly payments are always the same (fixed) and not subject to market movement.
Your (the borrower's) history of honouring credit agreements, your proven ability to repay any debts you've incurred within the term and conditions of the agreement. Your credit history is an indication to the bank of the risk that it is taking in lending this money to you.
The Facility Letter sets out the terms and conditions of the loan between the borrower and the bank,including the responsibilities and obligations of the parties.
Property or assets that are used to secure a loan. If the borrower defaults on the loan, the lender can seize the collateral to repay the loan.