Term and Revolving Loans

With a term loan, you must repay the loan either by instalments over the loan period, or in full at the end of the loan period, depending on the terms agreed with your lender.

Revolving loans allow you to use the money up to an agreed credit limit whenever you need it. Once you repay the amount owed, the credit becomes available to draw on again. An overdraft is an example of a revolving loan. You can draw a cheque on your current account up to the limit of the overdraft and you pay interest only on the amount used. Any unpaid interest becomes part of the outstanding overdraft in the following month. An overdraft can be recalled at any time on demand by the bank.

The main characteristics of term loans and revolving loans are shown below:

Term loan   Revolving loan 
Loan tenure Fixed tenure Short-term revolving
Interest rate charged Usually lower than revolving loan Usually higher than term loan
Interest rate type Can be fixed or variable Can be fixed or variable 
Recallable on demand? No (unless in the event of default) Yes
Loan can be tapped on after payback? No Yes
Fixed instalment payments Yes No
Repay anytime? No Yes

The above information is prepared in collaboration with the Association of Banks in Singapore.