What is a medium-term loan? How long is a medium-term loan?

Medium-term loans are a fairly common loan in banks today. If you are planning to borrow medium term but don't know What is a medium-term loan? Borrowed for how long? What are the documents and procedures, let's find out with Banktop in the article below.

What is a medium-term loan?

A medium-term loan is a form of loan at a bank or credit institution, with a term from 12 months to less than 60 months. The loan term is counted from the date the bank or credit institution disburses the capital until the customer pays all the principal and interest under the contract.

Medium-term loans are often suitable for businesses that need to invest in projects, fixed assets, and have slow capital turnover. Or individual customers who are in need of revolving capital to repay their expenses.

How long is a medium-term loan?

To meet the diverse needs of customers, most banks now have loan packages with different terms. Depending on the loan product, the customer can choose the loan term and capital payment.

According to the provisions of Article 10 of Circular 39/2016/TT-NHNN, medium-term loans have a loan term from 01 year to 05 years. In addition, this circular also stipulates the duration of short-term and sustainable loan packages, specifically:

The maximum short-term loan period is 01 year.

Durable loan period is more than 5 years.

Thus, it can be seen that with a medium-term loan, you need to pay it off 5 years before the loan term. Otherwise, you will be subject to the bank's late payment interest and penalty fees.

Pros and cons of medium-term loans

In general, a medium-term loan has many advantages and benefits if you pay the loan on time. But besides that, this loan still exists certain limitations. As follows:

Advantages

Unlike short-term loans, which only apply to working capital needs, medium-term loans are used for long-term development and are useful for economic growth and development. Therefore, by August 2017, the State Bank of Vietnam decided to increase the ratio of medium-term loans to 45% instead of 40% as originally planned.

The loan period is longer, so customers can feel more secure when borrowing money and be more active in their personal financial plans.

Disbursement method is flexible once or many times depending on the purpose of capital use. Disbursement in installments according to the project completion schedule or one-time disbursement to purchase fixed assets. Or the bank may not disburse if the customer's needs are not related to the project.

Limit

Because medium-term loans are often used to borrow capital, so the main resource for repayment is from the profit of the project, so the payback time of the loan is quite slow.

The project is long, so the risk of market volatility increases, the bank can't predict how the market will be in the following years, so the interest rate will update more slowly than short-term loans and customers will often have to mortgage. assets, the interest rate is also higher.

Due to the long loan period, in addition to mortgaging assets to minimize risk, banks also require equity participation.

Who should choose medium-term loans?

Customers can use medium-term loans for many different purposes. Because the loan period is not too long, medium-term loans are usually suitable for the following subjects:

Invest in building factories.

Purchase of fixed assets.

Procurement of industrial equipment, other machinery and equipment for production.

Repair and construction, change new technical facilities, ...

As for individuals, they often use medium-term loans to buy houses and pay short-term debts and buy personal consumption.

Medium-term loans are being applied

Currently, there are two popular medium-term forms being applied, including:

Credit according to investment projects

When lending by two or more credit institutions for projects of credit institutions. Combined with the party's joint venture activities, diversifying credit institutions. To ensure capital assets, do not use too much in the total capital of the enterprise.

In particular, the bank has launched projects to meet all risks. However, the bank does not want to take on this role. Therefore, venture capital lending is a lending activity that facilitates diversification for banks. Especially, it is possible to take advantage of investment capital in long-term projects.

Direct loans by project

This is also considered a medium-term form of credit in the market economy. For investment projects selected by customers, commercial banks will be the ones to implement and be responsible.

Thus, it can be seen that the bank not only lends money, but also has to perform a series of other tasks related to the efficiency of the project such as: Production planning, technological process, design, standards equipment, market valuation and return on investment.

Lease-purchase credit

During the lease period and can be rented, the tenant's status can be as the owner of the property or the right to buy the leased or leased property right next to the terms when agreed by both parties.

Property here includes both movable and immovable property, specifically as follows:

The main vehicle driving the car is a car, a technological production line…

Real estate is branch office, manufacturing factory…

According to the law, the lessee is the person to whom the lessor hands over the property, they are not allowed to sell but will receive the benefits of using the property. Of course, they are also responsible for any mishaps.

What are medium-term loan terms?

To be eligible for a medium-term loan, customers need to meet the following conditions:

Borrowers are aged from 18 to under 65 years old, have full civil act capacity.

Have a business registration document or a document of similar legal nature.

Having collateral is a house ownership document or proof of land use right.

Assets are formed from borrowed capital.

In some cases, customers need documents to prove their ability to repay debts.

Procedures and documents for medium-term loans

Medium-term loans have the risk of not being able to recover capital, so the procedures of banks are quite strict. To start making medium-term loans, you need to prepare the following important documents:

Medium-term loan application form according to the bank's form.

Dossier of project/work that needs a loan.

Financial records.

The report is related to the financial situation itself.

Proof of income.

The spreadsheet calculates the loan amount and estimated income to ensure the ability to repay the loan.

Some other documents at the request of the bank.

What is the medium-term loan interest rate?

Depending on the regulations of each bank, the medium-term loan interest rate will be different. Usually will range from 6.5% to 11%. This interest rate may fluctuate according to the time of borrowing and actual characteristics. However, the volatility is not too much.

List of banks providing medium-term loans with low interest rates

Currently, most banks are applying medium-term loans to mobilize capital. Each bank will have different regulations on interest rates, here are some low-interest medium-term banks that you can refer to:

UOB Bank has interest rates from 6.49%/year

Shinhan Bank has interest rate from 7.2%/year

BIDV, Vietcombank and VietinBank all apply loan interest rates from 7.7%/year.

Agribank applies interest rates from 8%/year.

In addition, banks also have many other attractive incentive policies. Customers can refer to choose the best loan bank.

Necessary notes when taking a medium-term loan

When applying for a medium-term loan, there are a few things you need to keep in mind:

Take the time to carefully read the loan terms in the contract, understand the interest rate, fees, payment time, if there is anything unclear, ask the bank immediately.

Pay your loan on time to avoid late fees and interest, affecting your credit score.

To limit the late payment, you can register for a debt reminder service at the bank.

Keep your payment receipt in case you need it.

Conclusion

Here are some answers What is a medium-term loan? that Banktop has shared with you. Hopefully this article will help you better understand this type of loan and choose the right loan. Don't forget to follow us to learn more useful Financial information.

Edited article: Banktop.vn