Loan Period

When applying for a loan, every detail is important for both parties. The debtor will have to follow the conditions specified in the loan agreement. One of the key categories to define is the loan period. It indicates the time during which the borrower must fully repay their debt to the lender. As a rule, this is a fixed period, and if the borrower is unable to fulfill their obligations within the allotted period, they need to ask the lender to extend repayment time.

Loan Periods for Different Types of Loans

There are different types of loans, and for each, the loan period may vary:

• The lender can provide a one-time payment of cash. In this case, the loan period will be equivalent to the time during which the borrower must repay it, including all interest payments.
• If a credit line is opened for a borrower, they can borrow the specified amount of money over a long period and in different portions. The time during which the borrower can access a line of credit may vary and be 3, 5, 10, or even more years, depending on the agreement with the lender. For this type of loan, the loan period means the time during which the lender has an opportunity to use the credit line and the maximum period for full repayment of the last tranche.
• Intermediate options are also possible, for example, when the lender does not provide the entire loan amount at once, but issues it in tranches. If you take a student loan, the lender may provide money for each academic year or semester separately. But even in this case, the loan period will be the entire period during which you must repay it in full.

Loan Period as an Essential Factor of the Loan’s Cost

The loan period is an important variable that affects how quickly you have to repay it and how much a loan will cost you:

• Long-term loans are attractive because you will transfer a small amount of money to the lender every month. This means that, if necessary, you can take out another loan, because your income will allow you to repay two or even three loans at the same time. However, the longer you will repay the loan, the more it will cost you, as, throughout the term of using the lender’s money, you will pay interest. And if you pay back the loan for several years or even decades, the interest will add up to a tidy sum.
• If you take out a short-term loan, you should repay it quite quickly. This means that the total amount of interest you will pay to the lender will be significantly lower than in the case of a long-term loan.

Therefore, before signing the terms of the loan agreement, calculate which loan period will be more profitable for you. However, remember that it must also be realistic to improve your credit score.