Last updated on September 4th, 2022 at 03:47 pm
Over time, you would hear banking institutions and money lenders mention terminologies like tenor and maturity. Some people use the two words interchangeably.
Both terms are not the same even though they may be used interchangeably for different types of financial instruments.
The major factors that determine loan tenor include credit score, the age of the borrower, the age of the property (if it’s a home loan), and interest rate (which can be found at: https://infomediang.com/calculate-loan-interest )
Tenor means the length of time remaining before a financial contract expires. It is usually used in relation to bank loans, insurance contracts, and derivative products.
Some use it interchangeably with the term maturity, but they have a clear distinction.
For example, a loan is taken out with a three-year tenor. After two-year passes, the tenor of the loan is one year.
From a contract point of view, tenor and maturity have distinct meanings. Maturity refers to the initial length of the agreement upon its inception.
For instance, if a 2-year SME loan was obtained two years ago, the maturity would be 2 years while the tenor would be the time remaining until the end of the contract.
If a year is gone, then it means the tenor is one year (the remaining year).
Maturity remains constant, the tenor is not.
While tenor is mostly used in relation to bank loans and insurance contracts, and derivative products, the term maturity is commonly used in relation to corporate and government bonds.