What is a key characteristic of term loans?

A key characteristic of term loans is that they may have either fixed or floating interest rates. This flexibility in interest rate structure allows borrowers to choose the option that best suits their financial situation and risk tolerance. Fixed interest rates provide predictability in repayment amounts over the loan term, which can be beneficial for budgeting and financial planning. On the other hand, floating interest rates can potentially offer lower costs if market rates decrease, although they also introduce uncertainty regarding future payments.

The ability to have either type of interest rate makes term loans adaptable to various borrower needs, supporting a broad range of financing requirements in corporate and personal finance. This versatility is one of the defining features that sets term loans apart from other forms of financing.