Every loan has a declared rate of interest. The interest could be a fixed rate or floating. It could be a combination as well, fixed for a few years and then adjustable as per the prevailing lending rates in the market. All standard loans are re-paid over a period and every instalment has a bit of the principal which is the loan amount and a bit of interest. Most loans are designed in a way wherein more interest is paid in the first few months or years and towards the latter half of the term it is more of the principal amount being re-paid and less of interest.

An interest only loan is an unconventional option in which you don’t repay any amount of the principal loan. You only repay the interest. Only when your interest is re-paid do you start repaying the principal loan amount. This is mostly applicable in cases of properties. Interest only loans are not readily available for all kinds of purchases or spending purposes.

Pros and Cons of Interest Only Loan

The Pros

The Cons