Term loan
A term loan is simply a loan that has to repaid in equal increments until the amount is repaid at the date that is specified. Other variables and stipulation can apply.[1] The payment schedule is fixed and the interest rate can be either fixed or variable depending on the terms of the loan. The payment periods can vary as well, they might be monthly or quarterly, monthly is the most common for a standard term loan. a loan where the debtor pays a potion of the principle amount as well as interest is called an amortizing loan.[2]
Assume that a $50,000.00 loan is for a term of 1 year with an interest rate of 8% and a monthly payment schedule:[3]
Monthly Interest Amount = <m>(Amount Of Loan) (\frac{Annual Interest Rate}{Number Of Payment Periods Per Anum})</m>
Monthly Interest Amount = <m>(50,000.00) (\frac{.08}{12})</m>
Monthly Interest Amount = $333.33
If the monthly interest payment is $333.33 then the monthly payment is:
Monthly Payment = <m>\frac{50,000.00}{12}) + 333.33</m>
Monthly Payment =$4,499.99
References
- ↑ Investopedia. "Unsecured Loan." [Online], Available:http://www.investopedia.com/terms/u/unsecuredloan.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186 [Aug 21, 2016].
- ↑ J. Berk et al. Corporate Finance. Toronto: Pearson Canada Inc., 2012, pp. 143.
- ↑ R. A. Brealey et al. Fundamentals of Corporate Finance. Toronto: McGraw-Hill Ryerson, 2012, pp. 660.