Term Loans: Types, Features & Eligibility

If you are looking for a loan that can meet your financial requirements and then repay it back within a fixed tenure, you may want to consider a term loan. This loan is granted for a specific period of time and can be repaid in regular installments. In this blog, we’ll explain what is term loan, including their features, types, and advantages. We’ll also cover eligibility criteria and required documentation.

What Is Term Loan?

A term loan means a type of loan extended for a fixed duration, requiring repayment through regular installments known as Equated Monthly Instalments (EMIs). These loans are designed to support various financial needs, ranging from purchasing equipment to funding personal projects. Typically, the repayment period can extend up to 20 years, making them suitable for significant financial commitments.

Term loans are accessible to both businesses and individuals. 

• For businesses, these loans can finance capital expenditures, expansion projects, or operational costs. 
• For individuals, they may be used for purposes such as buying a home, financing education, or making significant purchases.

Eligibility criteria for term loans can vary by lender but generally include factors like credit score, income level, and existing debt obligations

Types Of Term Loan

• Short-Term Loan– Short-term loans are typically sought by individuals facing unexpected cash shortages or looking to consolidate existing debts. These loans offer quick access to funds for immediate financial needs.
• Intermediate Loan– Intermediate loans are designed for a repayment period of approximately 2 to 5 years. Borrowers benefit from a structured repayment plan, making it easier to manage their finances over the loan’s duration.
• Long-Term Loan– Long-term loans are often used for significant investments, such as purchasing real estate or funding business initiatives. These loans provide borrowers with the capital needed for larger projects over an extended repayment period.

Eligibility Criteria For Term Loan

To qualify for a term loan, borrowers must meet certain criteria set by banks or financial institutions:

• Age Requirement: Applicants must be between 18 and 65 years old.
• Creditworthiness: A strong credit profile and a good repayment history are essential.
• Stable Income: A regular source of income is required to demonstrate the ability to repay the loan.
• Credit Score: Borrowers should have a credit score of 750 or above to be eligible for funding.

How Does the Term Loan Process Work?

The process to obtain a term loan involves the following steps:

• Filling Out the Application Form– Borrowers must complete an application form that provides detailed information about their creditworthiness, business plan, and financial projections. This step is crucial, as it helps lenders assess the borrower’s ability to repay the loan and understand the purpose of the funds.
• Lender’s Review– After submission, the lender will review the application thoroughly. This process may involve requesting additional documentation or collateral to strengthen the application. The lender’s evaluation ensures that the borrower meets the necessary criteria for loan approval.
• Loan Approval, Disbursement, and Repayment– Once the loan is approved, the borrower receives the funds to use as intended. Repayment begins with regular payments made to the lender, typically on a monthly basis. These payments comprise both principal and interest, allowing borrowers to gradually reduce their debt over the term of the loan.

What Are The Benefits Of Term Loan?

Through the below points, let’s explore the benefits of choosing term loan:

• Interest rates: The interest rates on term loan can be as low as 9% per annum. Financial institutions like NBFCs offer term loans at attractive rates.
• Types & categories: The term loans are available in 2 categories: secured and unsecured. This brings in the opportunity to choose a plan that aligns with your financial needs & requirements.
• Customization: Term loans can boost cash flow and lessen reliance on working capital. By providing a lump sum, these loans allow businesses to invest in inventory, upgrade equipment, or expand operations, enabling better expense management and supporting growth without straining daily finances.
• Business cash flow improvement: Businesses that opt for a term loan can improve cash flow and reduce reliance on working capital. This funding allows for strategic investments in inventory, equipment, or expansion, helping to stabilize finances and support growth.