Introduction
Interest-only repayment enables borrowers to pay accrued interest without reducing the loan principal during a specified period. Properly configuring this ensures clarity in payment schedules, compounding frequency, and overall loan management.
Navigating to This Section
Click the Gear icon in the top-right corner to open Settings.
Select Company Settings.
Use the left-hand navigation menu to expand Loan Setup/Origination.
Locate Repayment Methods.
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Interest Only
Interest-only settings allow flexibility in defining how borrowers handle interest payments before transitioning to full principal and interest repayment.
Setting | Description |
Payment Frequency and Compounding Aligned | Ensures payment and compounding intervals match, simplifying payment calculations. Example: Monthly payments with monthly compounding. |
Payment Frequency and Compounding Differ | Allows separate payment and compounding intervals, such as bi-weekly payments with monthly compounding, for specialized loan structures. |
Best Practice: Align payment and compounding frequency for simplified calculations unless structuring loans with custom payment schedules.
FAQs
Can a borrower make principal payments during the interest-only period?
Yes, depending on the loan terms, some lenders allow borrowers to make voluntary principal payments even during the interest-only period.
What happens if a borrower wants to extend the interest-only period?
Extensions may require loan modification or refinancing, subject to lender approval and borrower eligibility.
How do interest-only loans impact total loan costs?
Since principal payments are deferred, borrowers may end up paying more in total interest over the life of the loan.
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