Time as Loan Term
When you hear about a loan’s term, you’re most likely hearing about time. How long will the loan last? It can last for its entire term.
A loan term may be easy to identify. For example, a 30 year fixed rate mortgage has a term of 30 years. Auto loans often have 5 or 6 year terms. However, loans can last for any number of years -- as long or short as a lender and borrower are willing to agree on.
Some time before the end of a loan’s term, the loan must be paid off or refinanced. When you get a loan (such as a 5 year auto loan), you often have a required monthly payment. That payment is calculated so that you’ll pay off the loan entirely over the course of the loan’s term. At the end of the 5th year, your last payment will cover exactly what you owe. See how the process works by learning about loan amortization.
Requirements as Loan Terms
Loan terms can also refer to an agreement. When you borrow money, you and your lender agree to certain things -- "terms." They’ll provide a sum of money, you’ll repay according to an agreed upon schedule, and if something goes wrong each of you has rights and responsibilities that are listed in the loan agreement. Some common loan terms include:
- Interest rate -- you’re responsible for paying
- Length of time to repay (or loan term) -- you have the right to repay over the term
- Grace periods -- you have the right to a grace period to avoid penalties
- When and where payments must be made -- you’re responsible for paying as agreed