What is a Term Loan? How to Apply for it?

If you are a resident of South Africa, then you must be aware of the struggles of taking a loan. The initial difficulty is identifying between different types of loans to know which one is best for you. For instance, knowing about term loans and their different types can really help in the long run.

If you are also someone who is having trouble finding out what is a term loan, then do not fret. I am here with a perfect solution for you.

The article below will not only help you understand what is a term loan, but it will also list the types of term loans. You can also find out how to apply for a term loan along with the many benefits it offers to the citizens of South Africa.

Term Loan

A term loan can be simply defined as the amount of money given to the borrower for a fixed and pre-determined duration. The amount of the loan is repaid in installments which are usually called EMI or Equated Monthly Installments.

The repayment duration and the interest rate of the loan depend upon the amount the borrower takes. However, generally, the repayment period of a term loan is between 1 year to 30-years.

Types of Term Loan

There are two major types of term loans, Short Term Loans, and Long Term Loans. As their names indicate, a short-term loan is taken for a short period of time and needs to be repaid in that duration. On the other hand, a long-term loan is acquired for a longer duration for instance 15 years or 20 years.

A short-term loan is usually taken out by small businesses to keep their business up and running. However, a long-term loan can be taken for a multitude of reasons. The person can need it for buying a vehicle or purchasing real estate.

What Are The Benefits of a Term Loan?

The first major benefit that a term loan offers to the borrower is that the repayment plan is fixed. The lender can not make any changes to the original proposal of the loan after a while. Once both parties agree on terms, and sign on the offer, the regulations of the loan are fixed.

Therefore, the borrower has to return the amount of the loan with a fixed interest rate that was determined prior to taking the loan. Moreover, the lender can not also change the duration for any reason.

Another advantage of a term loan is that it is quite flexible in terms of money and repayment duration. The borrower can take a loan of the amount they need, no matter how small or big it is.

Moreover, they are able to fix the duration of the loan themselves before taking the loan. So, if a person needs a longer period to repay the bank the loan amount, they will be able to do so.

The fixed interest rate of a term loan is its third benefit for borrowers. In addition to that, a term loan also has much lower interest rates as compared to other types of loans. Not to mention, the borrower knows the interest rate and the fact that the lender can not change them.

A good credit history is another small yet helpful benefit that term loan offers to individuals. When the borrower repays their installments on time, it builds a good credit history.

This credit history helps the borrower a lot in the future when they need to take more loans. Seeing good history, many banks grant the loan no matter what the amount.

Requirements for Term Loan

The benefits of a term loan are quite many, but there is also an eligibility criterion. The applicant needs to meet all the requirements; otherwise, they will not be eligible for taking the loan.

The first requirement is that the person applying for the loan must be over the age of 18, and under the age of 65. If the applicant is under the age of 18 or more than 65, they will not be eligible for a term loan.

The second requirement is that the person applying for the loan must be a citizen of South Africa. Foreigners living in the country can not apply for the loan. The applicant must present his proof of identity along with his application. It can be in the form of an identity card issued by the government or a passport.

Proof of income is another requisite that the applicant needs to provide to the bank they are applying to for a term loan. In addition to that, the person also needs to mention their employment status in the application. It gives banks a surety that whether the applicant has funds to repay or not.

Furthermore, proof of residence is also required by most banks. Along with this, the applicant also needs to submit their credit history with the application.

The last thing that a person needs to provide is collateral. This is not a must, but if the amount of the loan is high, banks ask for this detail. Collateral means the applicant needs property documents or the documents of any other assets.

How to Apply for Term Loan?

Now that you are aware of all the requirements for a term loan, you need to gather these documents. Once the documentation is ready, it is time to determine which bank you want to apply to. Following are some of the major lenders offering term loans to the citizens of South Africa.

• Standard Bank
• Absa
• First National Bank
• Capitec Bank
• Nedbank
• African Bank

Pick one of these banks that offers the best terms and conditions. You can visit any branch of the bank and ask for an application form for a term loan. Fill out the form accurately and make sure not to leave out any detail that the bank is asking for.

Any inaccuracy or problem in the form can lead to the request getting rejected. Once the application has been filled, attach the required documents with it and submit it.

The bank will assess the application and if they approve it, you will receive an offer that will state the repayment duration and the interest rate. Once you accept the offer provided by the bank, they will provide you access to the funds in a few days.

FAQs

Conclusion

There are different types of loans in South Africa, as every person knows. But one of the feasible choices for many borrowers is a term loan.

However, the issue is many people do not know what is a term loan. Lucky for you, it has been described in detail in the article above.