Glossary > Finance > Credit And Lending > Consumer Credit

Loan Term

Loan term refers to the period over which a borrower agrees to repay a loan, including the total duration and the frequency of payments.

Example #1

For example, a 30-year mortgage loan term means the borrower has 30 years to repay the loan in regular installments.

Example #2

A personal loan with a loan term of 3 years requires the borrower to make monthly payments for three years until the loan is fully repaid.

Misuse

Misusing loan terms by offering extremely short repayment periods can burden consumers with high monthly payments that they may struggle to afford. Protecting consumers against such misuse is crucial to prevent predatory lending practices and ensure fair lending standards.

Benefits

Having longer loan terms can lead to lower monthly payments, making it easier for consumers to manage their finances and reduce the risk of default. It provides more flexibility to borrowers in budgeting their expenses over an extended period.

Conclusion

Loan terms play a vital role in determining the affordability and feasibility of loans for consumers. Protecting consumers from unfair loan terms is essential for promoting financial well-being and preventing debt traps.