What is Loan Maturity?
Learn what loan maturity means, understand the difference between maturity date and loan term, and know what happens when your loan reaches maturity.
Loan maturity (or maturity date) is the date when a loan must be fully repaid. On this date, any remaining principal balance and final interest payment are due. For fully amortizing loans, the balance should be zero at maturity if all payments were made on schedule.
Maturity Date vs. Loan Term
These related terms have distinct meanings:
- Loan term: The length of time you have to repay the loan (e.g., 5 years, 10 years)
- Maturity date: The specific calendar date when the loan term ends and full repayment is due
- Example: A 5-year term loan originated on January 1, 2026, has a maturity date of January 1, 2031
What Happens at Maturity
What happens when your loan reaches maturity depends on the loan type:
- Fully amortizing loans: If you have made all scheduled payments, the loan is paid off with no remaining balance
- Balloon loans: A large final payment (balloon payment) is due, which may require refinancing
- Interest-only loans: The full principal balance is due at maturity
- Lines of credit: The revolving period ends, and you may need to repay the balance or convert to a term loan
Balloon Payment Risk
If your loan has a balloon payment at maturity, plan ahead. You will need to either pay the lump sum from cash reserves or refinance into a new loan. Start this process 6-12 months before maturity.
Maturity and Prepayment
You can often pay off a loan before its maturity date (prepayment), though some loans charge prepayment penalties. Paying off early does not change the original maturity date — it simply means you have satisfied the obligation before it was due.
Matching Maturity to Purpose
When choosing loan terms, consider matching the maturity to the asset or purpose:
- Equipment: Maturity should not exceed the equipment's useful life
- Real estate: Longer maturities (15-25 years) are common and appropriate
- Working capital: Shorter maturities (1-3 years) typically make sense
- Vehicle financing: Usually 3-6 years depending on the vehicle
Approaching Maturity
As your loan approaches maturity:
- Review your remaining balance and final payment amount
- If there is a balloon payment, begin exploring refinancing options 6-12 months early
- Ensure you have funds available for the final payment
- Consider whether you want to renew or refinance if the option exists
Set a calendar reminder 12 months before your loan maturity date. This gives you time to prepare for the final payment or arrange refinancing if needed.
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
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