term loan
A loan for a specific amount repaid over a fixed schedule with a maturity date, as opposed to a revolving credit line that can be redrawn.
Example
“The 7-year term loan required quarterly amortization payments, fully repaying principal by maturity.”
Memory Tip
TERM LOAN = fixed amount, fixed schedule, fixed maturity. Unlike a revolver, once repaid it's gone.
Why It Matters
Understanding term loans helps you plan your finances because you know exactly when the loan will be paid off and what your monthly payment will be. This predictability makes budgeting easier compared to other types of credit that can fluctuate, and it helps you avoid getting trapped in long-term debt.
Common Misconception
Many people think term loans and credit cards are essentially the same thing, but they are very different. A term loan has a fixed end date and fixed payments, while a credit card is revolving credit that you can use repeatedly as long as you make minimum payments.
In Practice
If you borrow 20,000 dollars for a car with a 5-year term loan at 6 percent interest, you will make the same monthly payment of about 387 dollars for exactly 60 months, then the loan is completely finished. This is different from a credit line where you could borrow, repay, and borrow again without a set payoff date.
Etymology
TERM (fixed duration) LOAN. A LOAN with a defined TERM (repayment schedule and maturity).
Common Misspellings
Compare personal loan rates in minutes
Related Terms
More in loans
Other loans terms you should know
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.