The term is the duration of a loan. This allows you to calculate the total costs for a financing. This information helps you decide whether or not to take out a loan.
Different forms of a term
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 from the bank every month. The bank does not refer here to a regular term, but to 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 monthly the minimum monthly period that is contractually agreed
- The interest rate remains the same as that currently stated on your account statement
- No (future) withdrawals and / or additional deposits are made
Why the theoretical duration is only an indication of the actual duration 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 use these options affects the actual duration.
Practical duration 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 well as 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 influences the practical duration is if you yourself make an extra repayment in addition to your monthly installment. This will shorten the practical duration of most banks. That depends on the conditions of the bank in question. Also pay attention to whether you can redeem ‘without penalty’ or whether there are costs involved.
Advice on the term of your loan
The length of the duration depends on a number of factors. Take the monthly period, for example. The higher your monthly term, 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 that can play a role is age. In most cases, the income will fall as soon as you retire. If the loan has not been repaid before your retirement age, the monthly installment must be affordable based on 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 means that your monthly period is often considerably higher.