Interest-Only Loan

How interest-only loan works

The borrower services interest but does not normally reduce principal through those payments. The agreement may have fees, a temporary interest-only phase or other conditions that affect the final balance.

Practical UK business example

A company takes a property facility with interest-only payments and plans to repay capital from a defined sale. It tests what happens if the sale is delayed or values fall.

Illustrative example only; not a finance quotation or a client case study.

Why it matters

It can reduce payments during the interest-only period compared with an otherwise equivalent amortising loan, but requires a credible capital repayment plan.

Limitations and common misconceptions

Lower ongoing payments do not mean the debt is disappearing or the total cost is lower. Future refinancing is a possible exit, not a guaranteed right.

Explore property finance to discuss how the structure relates to your business.