Loan period

A loan period is the length of time you are allowed to borrow something. The term loan period can be used for anything from the time you are allowed to borrow a book from the library to the time you are allowed to borrow money from the bank.

In this article we focus on what loan term means and what lenders should be aware of.

How long can a loan period be?

Basically, there are no set rules for how long a loan period can be - it's up to the lender/lender to determine an appropriate loan period.

The loan term should be set based on internal requirements and guidelines that the lender defines itself, for example based on the credit policy.

Therefore, some loans may have flexible loan periods where the borrower can repay at their own pace as long as the bank accepts the risk. On the other hand, there are loans where the loan term is fixed in advance, such as mortgages, which typically have a loan term of 30 years.

Why work with loan periods?

There are several reasons to work actively with loan periods. Lenders and lenders often want to get their loans or assets back within a certain period of time, or they want the loan to be repaid.

Some lenders may be happy with just receiving interest, but a key reason to work with loan periods is to reduce risk.

The longer a borrower or borrower holds a loan, the greater the risk that the asset will be damaged, disappear or that the borrower's financial situation will deteriorate so that the principal cannot be repaid.

Loan periods are therefore an active part of the lender's credit and lending policy. As a general rule, short loan periods and smaller loan amounts involve lower risk compared to long loan periods and larger loan amounts.

How do you determine the right loan term?

There is no right or wrong way to determine loan periods. As long as the borrower can repay the loan, the risk is minimal.

However, sometimes the borrower is unable to repay all or part of the loan, which can lead to losses for the lender.

Therefore, lenders should always work actively with loan periods. Short loan periods can be allocated to borrowers with lower creditworthiness, while longer periods can be offered to those with a stronger financial situation.

The right loan term depends on the lender's own credit policy. A service like Qatchr.dk can help assess a company or individual's financial situation. The service can also recommend a suitable credit term or loan period based on this assessment.