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

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Many individuals in Nigeria are facing financial difficulties as a result of rising living costs and unpredictable life occurrences such as the abrupt Covid-19 outbreak. As a result, several sorts of loans, including term loans, are becoming more popular. A Term Loan is a short- or long-period loan granted by a financial institution for which an EMI (Equated Monthly Instalment) is required to be paid over the loan’s term. Let us look at term loans and its many varieties to see why they are so popular with borrowers.

What is a Term Loan?

A term loan, often known as a demand loan, is a helpful financial choice for business development or spending. Term loans come with both fixed and adjustable interest rates. The payback time for a term loan might range from one year to ten years, depending on the demand. On a case-by-case basis, depending on the lender and the borrower profile, the term loan period might be extended. Business loans, personal loans, house loans, student loans, and other types of loans fall under this category. These may be used for a variety of things, including business development, machinery purchases, working capital management, 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 typically has a length of 12 to 18 months, however lenders may extend the term dependent on the borrower’s creditworthiness. To cover their urgent cash needs, they turn to short-term loans. A working capital loan is a type of short-term loan that is used to cover day-to-day company expenses and must be returned within 12 months of the loan’s disbursement date.

Intermediate-term loan

Intermediate-term loans are offered with terms ranging from two to five years. New enterprises might be able to use these loans to manage their financial flow. They are used to fund assets like computers, which have a three- to five-year economic life.

Long-term loan

Long-term loans are offered for a length of time ranging from 5 to 10 years. Long-term loans are almost typically secured by the company’s or an individual’s assets. These loans usually have a set rate of interest and payback terms that range from monthly to quarterly, depending on the borrower’s needs. Long-term loans are beneficial when a large sum of money is required to purchase equipment that is used in the manufacturing process. A home loan, an education loan, a machinery loan, and other long-term loans are examples.

Because they have balloon payments, short-term and intermediate loans are sometimes known as balloon loans. These loans are known as balloon loans since the last amount is usually greater than the previous installments.

Borrowers should go to an instant loan app or a lending website to apply for a term loan or term financing. Compare loan applications that are straightforward to download from the Google Play Store. If the loan is accepted, the requested loan amount is disbursed in the borrower’s bank account within the timeframe specified by the lender, which varies.

LCredit, backed by Cashigo, one of Nigeria’s fastest-growing NBFCs, is one such secured digital lending platform that offers low-interest, collateral-free personal loans. As a result, a borrower can transfer their loan to such lenders, lowering their overall debt.

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