- What is the risk of an interest-only loan?
- With an interest-only loan, your monthly payments only cover interest charges, meaning your principal balance never decreases. When the interest-only period ends, payments will jump substantially to begin paying off principal.
- How does loan term length affect monthly payments versus total interest?
- A longer loan term lowers your required monthly installment by spreading principal over more months, but significantly increases total cumulative interest paid over the life of the loan.