The term is the duration of a loan. This allows you to calculate the total costs for financing. This information helps in deciding whether or not you want to take out a loan.
Different forms of maturity
How you calculate the term depends on the type of credit you take out. This can be a revolving credit or a personal loan.
Theoretical term with a Revolving Credit
The term of a Revolving Credit is usually stated on the account statement that you receive monthly from the bank. The bank is not referring to a regular term, but the theoretical term.
The theoretical term means that the stated term of your loan is an indication that is linked to a number of conditions, namely:
- You pay the minimum monthly installment that has been contractually agreed each month
- The interest rate remains the same as the percentage stated on your account statement at that time
- No (future) withdrawals and / or additional deposits are made
Why the theoretical term is only an indication of the actual term and terms that you still have to pay? A Revolving Credit gives you the freedom to repay without penalty, to withdraw an amount free of charge and has a variable interest rate. How you make use of these options affects the actual duration.
Practical term of a Personal Loan
Unlike a revolving credit, a Personal Loan does have a practical term - or a term that cannot change. That term is stated on your credit agreement, as are the interest rate and your monthly installment. The advantage of a personal loan is that all this information is fixed. The bank cannot therefore simply increase the monthly installment or interest rate.
The only thing that affects the practical term is if you make an extra repayment in addition to your monthly installment. This will shorten the practical term at most banks. That depends on the conditions of the relevant bank. Also pay attention to whether you can redeem 'penalty-free' or whether there are costs involved.
Advice about the term of your loan
How long the term must be depends on a number of factors. Take the monthly installment, for example. The higher your monthly installment, the shorter your term. But your monthly installment must remain affordable for you and be responsible. We always ensure that the financing you choose suits you.
Another factor to consider is age. In most cases, the income will decrease once you retire. If the loan is not paid off before your retirement age, the monthly installment must be payable on the basis of your new income. That is why it is sometimes wise to have repaid the loan before your retirement age. The fact remains: the shorter the term, the less costs you have to pay on the loan. However, this often means that your monthly installment is considerably higher.
Would you like to know more about the term of your existing or new loan? Then call 813-339-6809 , request a quote without obligation or fill in our contact form: we are happy to help you!