When concluding a loan agreement, the bank undertakes to make available to the borrower a certain amount of cash for a specified period ( loan period ). The borrower allocates funds from the loan to the purpose specified in the contract. The only exception is when we take out a cash loan for any purpose. In this case, as the name suggests, we can spend money on whatever we want. In addition, the borrower undertakes to return the borrowed amount of cash in the dates and amount specified in the contract and to cover the remaining costs of the loan. The bank is the dominant party in this relationship and has the right to control the spending and timely repayment throughout the entire loan period.
The term of the loan is the time for which the loan agreement applies. In the simplest terms, the term of the loan is the time for which the loan was granted to us by the bank. The beginning of the crediting period is the time when the bank transfers us funds from the loan to us. The end of the loan period is the day on which we pay off the last installment of the loan, and thus we will repay the loan in its entirety. The loan period is determined in the contract.
Distribution of loans based on the loan period
- short-term loan – usually the loan period is maximum 1 year,
- medium-term loan – usually granted for a period from 1 to 3 years, the maximum loan period is 5 years,
- long-term loan – the loan period is in this case over 3 years or over 5 years.
Shortened loan period
The loan period may be shortened. This is the case when we repay the entire amount due before the deadline set in the loan agreement.
Extended loan period
We can meet an extended lending period when, during one loan agreement, we decide to increase the loan capital, and thus its cost. Then, as a rule, to keep the amount of installments in the current amount, we extend the loan period.
The loan period may also be extended if we use loan insurance and postpone the repayment date. Due to the fact that we do not have to pay back the loan for a specific period, we extend the repayment period.