Interest-Only
Quick Summary
A payment structure where monthly payments cover interest, not principal.
ELI5 Explanation
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You pay the cost of borrowing now and deal with principal later.
Detailed Explanation
Interest-only payments improve monthly cash flow but do not reduce loan balance. Borrowers need a clear payoff/refinance plan at maturity.
Example
A one-year private loan at 12% may require monthly interest payments and full principal payout at term-end.
Why It Matters
It lowers monthly burden while increasing balloon-risk at maturity.