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Interest-Only Loan
An interest-only loan allows scheduled interest payments for a defined period without reducing principal.
An interest-only loan has a specified period when scheduled payments cover interest without paying down the principal. Making those payments does not reduce the amount borrowed.
After the interest-only period, the loan terms may require principal repayment through higher periodic payments or a lump sum. Refinancing may be an option, but its availability is not guaranteed.
Source: CFPB: What is an interest-only loan?.
Frequently Asked Questions
What happens after the interest-only period?
The required repayment depends on the loan terms. It can involve higher payments or a lump-sum balance; refinancing is not guaranteed.
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