What is a Term Loan?
A term loan is a loan that has an agreed repayment schedule over a well pre-defined duration of the loan for a lump sum cash amount. It’s typically repaid over a fixed period of time and is used for various purposes, including business expansion, equipment purchases, working capital, or other purposes.
In other words, term loans are types of financing with a fixed (or a floating interest rate) rate and a fixed repayment schedule. It can make budgeting and forecasting easier for borrowers as they know exactly how much their loan payments will be each month.
There are two types of term loans – short-term loans and long-term loans.
Short Term Loans vs. Long Term Loans
The difference between short-term and long-term loans is the repayment period of the loan amount. Short-term loans are repayable within a few months to not more than a year. They have loan amounts of smaller value that are accessible and quickly disbursed.
On the other hand, a long-term loan generally refers to financing repayable for three up to 20 years in the case of home loans.
Different Long-Term Loan Products in the Philippines
Banks and financing companies offer different loan products, which are regulated by the Bangko Sentral ng Pilipinas (BSP). The most common long-term loan products offered in the Philippines are:
- Personal loans
- Home Loans
- Auto Loans
- Student Loans
- Business Loans (Corporate Loans)
One of the most popular long-term loan products is the personal loan. It’s the most flexible and accessible loan to acquire that banks and other financing companies offer. Unlike other types of loans, personal loans are multi-purpose – a borrower can have different reasons for applying for a long-term loan and choose a loan offer that matches their ability to repay it.
Banks that Offer Long Term Loans in the Philippines
Maybank
Maybank offers long-term loans for both individuals and businesses in the Philippines. For businesses, the maximum loan term they can offer is 10 years. The repayment includes interest that is payable monthly in arrears and the principal amount can be paid in equal or graduated monthly or quarterly payments.
Land Bank of the Philippines
Land Bank of the Philippines offers housing and business loans to both individuals and entrepreneurs.
The housing loan is offered with a minimum loanable amount of Php500,000 and can be repaid for a maximum loan term of 20 years.
The business loan is open for small and medium enterprises to finance business expansions, purchase additional machinery and equipment, acquire fixed assets, finance permanent working capital arising from expanded operations, or project financing.
Union Bank of the Philippines
UnionBank also offers home and auto loans available for repayment for up to 20 years, while their auto loans can be repaid for up to 5 years.
Tonik Bank
Tonik Bank boasts as a fully digital bank that offers loans for amounts up to Php50,000 and can be repaid within 24 months with a fixed monthly interest rate of 7%. With only 1 valid government ID and proof of income, a borrower can avail of a term loan within just a few minutes.
Security Bank
There are many term loans that Security Bank offers, such as personal loans, auto loans, home loans, salary advance loans, and employee loans.
Among the many long-term loans available, the personal loan offers a maximum repayment period of 3 years, a maximum loanable amount of Php2,000,000, and an interest rate based on the bank’s prevailing interest rates.
Advantages & Disdvantages of Long-Term Personal Loan
Advantages
- Lower monthly amortization – When payment periods are stretched, the repayment of the principal amount lessens, so most people prefer long-term personal loans over loans with shorter terms.
- Higher Loan Value – Stretching the loan term means that the borrower’s salary can accommodate a much higher loan amount with lower repayment of the principal amount each month.
Disadvantages
- Longer Loan Repayment – Not many people will want to pay back their loans over an extended period of time. Some people prefer to be liability-free sooner, even if they have to pay a higher amount in short loan tenure.
- Higher Interest Rate – With a longer repayment period, a borrower’s risk of default is higher. It also means that the lender can’t get back the amount lent soon. Higher interest can cover both risks for the lender.
- Fees Due to Early Termination of Loan – If the borrower decides to pay back the loan amount earlier than the initially agreed term, some lenders will charge an early termination fee to cover the interest income they could have earned until its maturity.
Conclusion
Long-term loans may be beneficial for someone who is in need of a larger amount of money and wishes to pay for a longer period of time. However, longer loan tenure equates to a higher interest rate. Borrowers should read the fine print first before signing the agreement.