Business and Personal Finance Dictionary

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• INTEREST ONLY LOANS
  
  Loans that as the name implies, allow a borrower to pay only the interest on the loan for a fixed amount of time. At the end of the fixed amount of time, the borrower either pays off the total loan in one payment, refinances the loan, or starts paying off the principal. Interest only loans are beneficial because they provide the lowest possible payment per month. However, only a select number of people should even consider taking out an interest only loan because of the risks associated with it. The only person who would really benefit from taking out an interest only loan would be a businessman such as an executive. This person would benefit from making bonuses or other large sums of money throughout the year but have other months throughout the year where he or she only earns a moderate salary. This way the person would benefit from lower monthly payment and be able to pay large amounts to the loan when his or her bonus time rolled around. Another person who might benefit from interest only loans is one who does not have a predictable salary, or even one who expects to earn a lot of money within a few years. There are a few advantages and many disadvantages about taking out an interest only loan. One advantage is interest only loans offer flexibility, meaning someone can take out an interest only loan at virtually any price they want. An interest only loan also allows the borrower better purchasing power. Interest only loans allow for lower monthly payments. However, the disadvantage kicks in when the loan term is over and the borrower has to start paying on the principal. Payments rise dramatically and if one is not prepared financially, they could be in a lot of trouble. Interest only loans also do not necessarily have a lower interest rate. In some cases, a lender might charge a higher rate because of the risk associated with interest only loans. A final disadvantage is if one is not careful and does not calculate the cost of an interest only loan compared to a regular loan, they might end up spending more money than if they had just taken out a regular loan. Lenders today see that an increasing group of people who take out interest only loans are young people rising successfully in the business world. These young people want to immediately buy all that wealth can buy - a big house, a fancy car, and anything else they can get their hands on.
  
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