Listen to a Business English Dialogue About Interest only loan
Clara: Hi Anna, have you heard of an “interest-only loan” in the context of business and finance?
Anna: Hello Clara! Yes, I have. An interest-only loan is a type of loan where the borrower only pays the interest for a certain period, usually the initial period of the loan.
Clara: That’s right. During this initial period, the borrower’s monthly payments are lower because they’re not paying off any of the principal amount borrowed.
Anna: Exactly. However, after the interest-only period ends, the borrower typically has to start paying both the principal and interest, which can lead to higher monthly payments.
Clara: Right. Interest-only loans can be useful for people who expect their income to increase significantly in the future or for those who plan to sell the property before the interest-only period ends.
Anna: Yes, but they also come with risks, such as potential increases in monthly payments and the possibility of owing more than the property is worth if its value decreases.
Clara: That’s a good point. So, it’s essential for borrowers to carefully consider their financial situation and long-term plans before opting for an interest-only loan.
Anna: Absolutely. Understanding the terms and potential risks of any loan is crucial for making informed financial decisions.