Term Structure Of Interest Rates

See: Term Loan. See: Yield Curve.

"Term" here is the duration or amount of time between now and when a loan comes due.

Notionally, and normally, loans due sooner carry a lower interest rate than loans due far away in time. Why? Risk. When there exist only three months from now until a loan is due, it's really easy to take a credit snapshot and determine whether the borrower is money good...or not. The variability of the world's credit situation is way less over three months than it is over 30 years. So it's this "term structure" of interest rates, i.e. the risk-adjusted pricing of the cost of renting money...that derives the yield curve.

Key notion: longer duration: usually more risky, hence higher interest rates...more "terms" under which to pay it off, with each term adding risk and uncertainty. Shorter duration: the opposite.