Glossary
Interest-only period
A window at the start of a facility where only interest is paid and the principal does not reduce.
In plain English
During an interest-only period the repayment covers interest alone. The balance does not fall, and when the period ends the same principal has to be repaid over a shorter remaining term, which raises the repayment sharply.
It is commonly used where a business needs breathing room while something ramps up: a fit-out, a new site, a season before trading normalises.
Why a lender cares
Two things matter. First, most lenders assess serviceability on the principal and interest repayment, not the interest-only one, so the period helps your cash flow and does nothing for your capacity. Second, the step-up at the end is the risk: a facility that services comfortably interest-only can fail the moment principal starts, and that date is known years in advance.
Where this term takes you
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