Interest-Only Loan

An interest-only loan is a type of loan where the borrower pays only the interest on the principal balance for a specified period, without reducing the principal amount. After this period, the borrower must begin repaying both principal and interest, often resulting in higher payments. This loan structure can offer lower initial monthly payments but may lead to larger payments later on. 

It’s crucial for lenders to evaluate the long-term financial impact and ensure that borrowers are prepared for the increased payments once the interest-only period ends.