Term loans allow you to borrow money that you repay over a set period of time or "term." Assess if you are comfortable with a longer financial commitment that may have higher interest costs but lower monthly payments. Also think about upcoming life changes that may impact your ability to repay the loan.
Personal Loan Terms
Typically, personal loans allow a repayment term of two to seven years. Loans with terms of three years or less are considered short-term while longer terms are seen as long-term. For example, if you borrow $5,000 at 12% interest and choose a five-year term, your monthly payment will be fixed.
Business Loan Terms
Term loans for businesses have repayment terms from two to ten years, whether secured by collateral or unsecured. The approval process for medium and long-term business loans is strict since the borrowed amounts are large.
When weighing your repayment term options, strike a balance between affordable payments each month and your total interest costs over the life of the loan.
Choosing Your Loan Term
The loan term is the length of time you have to pay back the funds. Term lengths range anywhere from 1 to 60 months. Find the shortest term you can manage while keeping payments affordable.
The length of a short-term loan is usually a year or less. You need to weigh the pros and cons of short and long term loans given your situation. Use a loan calculator to help decide the loan length and terms you want.
Business lines of credit allow flexible repayment structures, from as little as six months to as long as five years. Once approved and signed, disbursement speed depends on the lender.
Choosing the right personal loan term length all depends on your budget and debt payoff goals.
Steps to Choosing the Right Term
- Consider Your Current and Future Budget
- Understand Short-Term vs. Long-Term Loans
- Review the Monthly Payments
Classification or Types of Term Loan There are three main classification found in Term Loans: short-term term loan, intermediate term loan, and long-term term loan.
Common Questions and Considerations
FAQs
Q. Can I get a long-term loan with bad credit?
A. Getting a long-term loan with bad credit can be challenging, as lenders typically consider credit history when evaluating loan applications.
Q. Can I get a short-term loan with bad credit?
A. Obtaining a short-term loan with bad credit is possible, as some lenders cater specifically to individuals with less-than-perfect credit.
The main difference between short-term and long-term loans is the repayment tenure. A long-term loan may be more affordable in terms of monthly payments, but it can be costly overall due to higher total interest paid.