What is a Bank Term Loan?
Bank term loans are the loans a bank issues with a long term repayment plan. The typical period of repayment exceeds one year. The interest rates are fixed on these loans. The bank distributes the money similar to credit, and the business owners can then use the loan for their finances as required. They need to pay the decided fixed amount on the amount remaining.
How Does Bank Term Loan Work?
When your application for a bank term loan is approved, you get the amount applied for, and a fixed monthly payment you are required to make is decided. A fixed interest rate is charged on the amount.
The banks get the profit owing to this interest rate. Every time you make your monthly payment, a significant amount of it goes to the interest rather than principal. Considering that bank term loans are usually long-term, a sufficient profit is acquired by the bank owing to the interest rate.