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Definition
During an interest-only period, your payments service the interest but leave the principal untouched. It is common at the start of development, asset or seasonal facilities. Because the balance does not fall, the interest keeps accruing on the full amount, so the total cost is higher than an amortising schedule from day one.
In plain terms
It is a breathing space, not a discount. You pay less now and more later, because the debt is not shrinking during the interest-only spell.
Why it matters for your company
Use an interest-only period deliberately — to bridge to a revenue event — not by default. Model the full cost with the loan repayment calculator. See capital repayment holiday.
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Read →Funding for UK limited companies
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