Term loans have emerged as a popular financing option for individuals and businesses alike, providing a structured means to fulfill various financial requirements.
Whether it’s funding a business expansion, purchasing a new vehicle, or renovating a home, term loans offer the flexibility and stability needed to achieve these goals.
The structured repayment plans offered by term loans allow borrowers to manage their cash flow efficiently, ensuring steady progress toward loan clearance.
Additionally, term loans often come with competitive interest rates, making them a cost-effective solution compared to other credit options.
In a world where financial decisions hold immense significance, gaining a comprehensive understanding of term loans becomes a crucial step toward achieving financial stability and success.
In this article, we will explore the world of term loans, delving into their eligibility criteria, interest rates, and much more.
Term Loan Interest Rates 2023
| Axis Bank | 14.95% – 19.20% p.a. |
| Bajaj Finserv | 9.75% – 30% p.a. |
| Flexiloans | 1% per month onwards |
| HDB Financial Services Ltd. | Up to 36% p.a. |
| HDFC Bank | 10% – 22.50% p.a. |
| IDFC First Bank | 10.50% p.a. onwards |
| Indifi | 1.50% per month onwards |
| Kotak Mahindra Bank | 16% – 26% p.a. |
| Lendingkart | 12% – 27% p.a. |
| Mcapital | 2% per month onwards |
| NeoGrowth Finance | 19% – 24% p.a. |
| Tata Capital | 12% p.a. onwards |
| UGRO Capital | 14.90% p.a. |
Features of Term Loans
The following are the features of the term loan-
- Term loans typically offer a lump sum amount of money which is determined based on factors such as the Credit Score, income, and the purpose of the loan
- Term loans have a predetermined repayment period, which is the duration within which the borrower is required to repay the loan
- Term loans can have a fixed interest rate, which means that the interest rate remains constant throughout the repayment period
- Term loans often follow an amortization schedule, which outlines the repayment structure
- Some term loans may require collateral, which is an asset or property that the borrower pledges as security for the loan
- Term loans may involve certain fees and charges, such as loan origination fees, prepayment penalties, or late payment fees
- Term loans provide flexibility in terms of how the funds can be used. Whether it’s for business expansion, purchasing equipment, funding education, or personal expenses, borrowers have the freedom to allocate the loan amount as per their specific needs
- Term loans are repaid through fixed monthly instalments known as EMIs which includes both the principal repayment and the interest payable on the loan
- Some term loans allow borrowers to make prepayments or repay the loan in full before the scheduled tenure
Eligibility for Term Loan
The following are the eligibility for Term Loans-
- It would help if you had a higher credit score to ensure your loan is not rejected the higher credit score indicates a lower risk to the lender and may result in more favorable loan terms
- Lenders assess the borrower’s income stability to ensure their ability to repay the loan
- If the term loan is for business purposes, lenders may consider the performance and financial stability of the borrower’s business
- Some term loans may require collateral, such as property, assets, or inventory, to secure the loan
- Lenders assess the loan amount requested by the borrower and their ability to repay it based on their income and other financial obligations
Documents Required for Term Loan
The following are the documents required for term loans-
- Identity Proof: A valid government-issued identity proof such as Aadhaar Card, Passport, Voter ID, or PAN Card, etc.
- Borrower’s residential address, such as Aadhaar Card, Passport, Voter ID, or utility bills (electricity bill, telephone bill, etc.
- Income Proof- salary slips, bank statements, income tax returns, Form 16, or audited financial statements (for self-employed individuals or businesses).
- Employment Proof:
- For salaried individuals, proof of employment such as an employment letter, offer letter, or appointment letter from the employer
- Business Proof, If the term loan is for business purposes, additional documents may be required, such as business registration certificates, GST registration, partnership deeds, Memorandum of Association (MOA), Articles of Association (AOA), or other relevant business documents.
- lenders require the borrower’s bank statements for the past 6 to 12 months to assess their financial transactions, income, and repayment patterns
- If the loan is secured against property or collateral, documents such as property ownership papers, title deeds, property valuation reports, or encumbrance certificates may be required
- Income tax-related documents such as Income Tax Returns (ITR), Form 16, or tax assessment orders may be requested to verify the borrower’s tax compliance and income details
- Recent passport-sized photographs of the borrower
Advantages of Term Loans
The following are the advantages of term loans-
- Term loans provide borrowers with a substantial lump sum amount upfront, which can be crucial for addressing various financial needs
- Term loans come with a predetermined repayment period and fixed monthly installments, making it easier for borrowers to budget and plan their finances
- Many term loans offer fixed interest rates, meaning that the interest rate remains unchanged throughout the loan tenure
- Term loans typically provide borrowers with flexibility in using the loan funds.
- The interest paid on term loans may be tax-deductible for business loans or loans taken for specific purposes such as home improvements or education
- Making regular and timely payments demonstrates financial responsibility and can improve credit scores, making it easier to access credit in the future at more favorable terms
- Compared to certain other forms of financing, such as credit cards or unsecured personal loans, term loans often come with lower interest rates
- Borrowers can negotiate terms such as repayment tenure, interest rate, and collateral, allowing for a customized loan structure that aligns with their financial capabilities
FAQ
The interest rate on a term loan depends on various factors such as the borrower’s creditworthiness, prevailing market rates, loan amount, and loan tenure. It can be either fixed or variable.
Yes, it is possible to repay a term loan before the agreed tenure. However, some lenders may impose prepayment penalties or fees for early repayment, so it’s important to check the loan terms and conditions.
A secured term loan requires collateral, such as property or assets, to secure the loan. In contrast, an unsecured term loan does not require collateral but may have higher interest rates and stricter eligibility criteria.
Yes, term loans can typically be used for various purposes, such as funding business expansions, purchasing equipment, consolidating debt, home renovations, or personal expenses.
The time for loan approval can vary depending on the lender and the complexity of the application. It can range from a few days to a few weeks. Providing complete and accurate documentation can expedite the process.
Defaulting on a term loan can have serious consequences, such as damage to your credit score, legal action by the lender, and potential loss of collateral (if applicable). It’s important to communicate with the lender if facing difficulties in repayment to explore potential solutions.
