Interest-Only Loan
A loan where payments initially cover only the interest, not the principal balance. After the interest-only period (typically 5–10 years), payments increase to cover both principal and interest. Monthly payments are lower initially but the balance doesn't decrease until the principal repayment period begins.
Related guides
- Full credit & FICO® glossary
Browse all defined terms by category.
- Mortgage
A loan used to purchase or refinance real estate, where the property serves as collateral. Mortgages are installment loans with terms typically ranging from 10 to 30 years. Missing mortgage payments can lead to foreclosure. Minimum credit scores vary by loan type (FHA: 500, conventional: 620).
- Installment Loan
A loan repaid in fixed monthly payments (installments) over a set period of time. Examples include mortgages, auto loans, student loans, and personal loans. Unlike revolving credit, installment loans have a fixed balance that decreases with each payment.
Frequently Asked Questions About Interest-Only Loan
What does Interest-Only Loan mean?
A loan where payments initially cover only the interest, not the principal balance. After the interest-only period (typically 5–10 years), payments increase to cover both principal and interest. Monthly payments are lower initially but the balance doesn't decrease until the principal repayment period begins.
Is Interest-Only Loan important for my FICO® score?
Understanding Interest-Only Loan helps you manage your credit profile more effectively, which in turn supports a stronger FICO® score.