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What is an Evergreen Loan?

Mary McMahon
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Updated: May 17, 2024
Views: 6,257
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An evergreen loan is a loan which can be regularly renewed until it expires. Rather than being contractually bound to specific repayment terms, the borrower can take out money and pay it back as many times as necessary until the term of the loan ends. Such loans are sometimes known as revolving loans or standing loans. The credit card is an example of a type of financing which could be considered an evergreen loan.

Evergreen loans are designed as short-term loans, to provide people with capital to cover needed expenses in the short term. They can be used like long-term financing, however, and often are. One common situation in which people use evergreen loans is in the financing of projects such as real estate developments. They use the loan to get started, repay the loan as people commit to the project, and take out money again to finance further expansion.

When someone applies for an evergreen loan, the bank determines the maximum amount of money which the borrower can access. The borrower can keep taking out money with a charge card, checks, or by making direct withdrawals from a loan account until this amount has been reached. When the borrower maxes out, he or she will need to repay part of the loan in order to take out more money. Interest is also charged on the outstanding principal, and customers have the option of avoiding interest charges by repaying the principal in full every month.

This type of credit has a number of advantages which can make it popular with borrowers. One advantage to an evergreen loan is that it is a highly flexible form of open-end credit. As long as there is credit available, people can access financing, but they are not required to use that financing. Rather than applying for a new loan every time financing is needed, borrowers can take out more money from the evergreen loan. People can keep the supply of credit flowing by repaying borrowed funds so that they stay below the maximum.

Evergreen loans ultimately expire. This is written into the terms of the loan contract. When the loan expires, people may have an option of renewing, as with a credit card when the lender will keep an account open for a customer who wishes to continue using the card. In other cases, the lender may close the account and demand repayment of any outstanding interest and principal.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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