Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Skip to content
Home » What is an example of interest only?

What is an example of interest only?

An ideal illustration of an interest-only arrangement can be found in a line of credit. This type of loan stands out due to its unique payment structure. Unlike traditional loans where both the principal and interest are paid monthly, an interest-only loan requires only the interest to be paid regularly. This means the borrower’s monthly servicing requirements are notably lower since they are not chipping away at the principal. In essence, borrowers are solely responsible for covering the interest, which makes these loans a preferred choice for some individuals.

Moreover, what sets interest-only loans apart is their remarkable flexibility. Take the line of credit, for instance. Once the interest is paid, borrowers have the freedom to redraw the funds they’ve repaid without facing any penalties. This feature can be incredibly advantageous, especially for those with fluctuating financial needs. Whether it’s for a sudden expense or an investment opportunity, having the ability to borrow and repay without constraints provides a sense of financial freedom. It essentially allows individuals to tailor their borrowing to their specific needs at any given time.

In summary, an interest-only loan, such as a line of credit, offers a practical solution for individuals seeking lower monthly payments and increased flexibility. By focusing solely on paying the interest, borrowers can manage their financial obligations more effectively. Additionally, the option to redraw the funds without penalty makes these loans a versatile tool for addressing varying financial needs. For those who prioritize financial control and adaptability, an interest-only loan could be a valuable option to consider.

(Response: A line of credit is a good example of an interest-only loan because it allows borrowers to pay only the interest, resulting in lower monthly servicing requirements. The flexibility to redraw funds without penalties makes it an attractive option for managing fluctuating financial needs.)