Amortising vs interest-only: two ways to structure repayments

How amortising works

An amortising loan repays interest and a slice of principal in every instalment, so the balance falls to zero by the end of the term. Payments are higher than interest-only, but the debt reduces steadily and predictably — the standard, safe structure.

How interest-only works

An interest-only structure pays only the interest during the term, leaving the full principal to repay at the end — often as a bullet repayment. Payments are much lower month to month, but the balance does not shrink, so affordability must be tested against that final lump.

Cost and risk compared

Interest-only can cost more in total, because you pay interest on the full balance throughout. It suits a business expecting a known inflow to clear the principal — a sale, a contract completion. Amortising is lower-risk for ordinary trading. See what is a good DSCR.

Choosing the structure

Choose amortising for steady, predictable repayment from trading cash; consider interest-only only where a specific future inflow will clear the balance and the lower interim payments genuinely help. Test both against your headroom.

Model each structure

Use the calculator to compare payments under each approach.

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