An interest-only loan is a type of loan in which the borrower is only required to pay the interest on the principal amount for a certain period.
For example, a real estate developer secures an 18-month interest-only loan of $2 million to purchase and develop a commercial property. During construction, monthly payments cover only the interest ($10,000/month at 6%), keeping cash flow manageable until the property is sold or refinanced at completion.
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