Theterm of a loan is the length of time a bank grants money to a borrower. It is determined individually depending on a number of factors, such as the amount of the loan, the purpose of the loan or our financial situation. Learn more about the loan term.
What is a loan term? Definition of the term
Every bank loan has a credit period, and this period is set by the bank at the time of granting the loan. The loan period is the time in which the borrower must give back the entire amount of the loan plus interest. If the borrower does not give back the entire loan on time, the bank can take legal action against him. Therefore, the loan term is very important for the borrower, as he needs to know exactly when he has to give back the entire loan. It is also worth noting that the loan term can vary depending on the type of loan. For example, a car loan may have a shorter loan term than a mortgage. This is because a car loan is granted for a shorter period than a mortgage.
The term of the loan, and the cost of the loan
Many of us, when we think about a loan, pay attention only to its interest rate. And this is a mistake! The term of the loan also has a big impact on the total cost of the loan.
So let’s see how it works. Let’s assume that we are buying an apartment for 200,000 zlotys. We take a loan for 30 years in the amount of PLN 150,000. If the interest rate on the loan is 3%, the total cost of the loan will be PLN 97,000. However, if the interest rate is 5%, the total cost of the loan will increase to 122,000 zlotys.
So you can see that choosing the right loan term can cost us a lot. Therefore, before deciding on a loan, it is worth thinking carefully about the period for which we will take it.
Is it worth shortening the loan period?
A short loan period is a good thing when it comes to your budget. We pay less interest, and the entire loan is paid off faster. In the long run, this means that the money that would have been spent on loan installments can be used for other purposes. Remember, however, that a short loan term means a higher installment. If you are unable to pay the installment, you run the risk of losing the entire loan. A short loan period can be a good solution if you are sure you will be able to pay the installment.
Loan term – what does it depend on?
The loan period is the length of time for which the bank grants the borrower money. It is determined individually depending on a number of factors. The most important of these is, of course, the amount of the loan. The larger the amount, the longer the loan period. Another factor is the purpose of the loan. If we want to buy an apartment or a house, banks will grant a loan for a longer period than for a car loan. Another factor is our financial situation. If we are able to repay the loan in a shorter period, the bank will smile more favorably on us and grant a loan for a shorter period.
