How does a term loan differ from a revolver regarding principal repayment?

A term loan is characterized by a defined repayment schedule, which outlines specific amounts that must be paid at regular intervals over the life of the loan. This predictable repayment structure helps borrowers plan their cash flows effectively, as they know exactly how much they need to pay and when. It typically involves both interest and principal payments made on a predetermined schedule, leading to the loan being fully amortized by maturity.

On the other hand, a revolver, or revolving credit facility, does not have a specified repayment schedule. Borrowers can withdraw, repay, and re-borrow funds as needed within the credit limit. This flexibility means that while interest is usually paid on any drawn amount, there is no obligatory schedule for principal repayment, allowing the borrower to manage cash flows more dynamically.

The other options do not accurately capture the nature of the term loan. Monthly repayments might be a feature of some term loans, but they are not universally so, as the repayment frequency can vary; hence it's not a defining characteristic. Additionally, stating that term loans do not require any repayment is incorrect, as all term loans involve a repayment obligation. Finally, while revolvers allow flexibility, they do have repayment obligations in terms of interest, thus the statement regarding them having no repayment obligation is