Loan Term
The agreed length of time the borrower has to repay a loan in full.
What is Loan Term?
The loan term is the contractually agreed period over which a borrower must fully repay a loan, including all principal and interest. Common mortgage loan terms are 15 and 30 years, while auto loans typically run 36–72 months and personal loans 1–7 years. The loan term directly affects both the monthly payment amount and the total interest cost over the life of the loan. Longer terms reduce monthly payments by spreading principal repayment over more periods, but result in significantly higher total interest paid. Shorter terms require larger monthly payments but reduce total interest cost and build equity faster. Borrowers choose terms based on their affordability constraints and goals—a 15-year mortgage costs less in total interest but requires a roughly 30% higher monthly payment than a 30-year mortgage at the same rate.
Example
A $400,000 mortgage at 7% over 30 years carries monthly principal-and-interest payments of $2,661 and total interest of $558,000. The same mortgage over 15 years requires payments of $3,595 but total interest of only $247,000 — paying $311,000 less in interest by choosing the shorter loan term.
Source: Investopedia — Loan Term