Fixed instalments vs interest-only borrowing

2 min read

Clears steadilyFixed instalments

Capital deferredInterest-only

Discipline vs cash flowThe trade

Two repayment shapes

With fixed (amortising) instalments, each payment covers interest and a slice of capital, so the balance falls steadily and the debt is cleared by the end of the term. With interest-only, you pay just the interest during the term and repay the full capital at the end (or refinance it). Interest-only keeps monthly payments low but leaves a large sum to find later; fixed instalments cost more each month but clear the debt for certain. See loan amortisation.

The trade-off

	Fixed instalments	Interest-only
Monthly cost	Higher	Lower
Balance	Falls steadily	Unchanged until the end
End of term	Debt cleared	Full capital due
Risk	Low	The capital 'bullet' at the end

Interest-only suits a specific case: you expect a lump sum (an asset sale, a refinance, a big payment) to clear the capital, and want low payments meanwhile. Without that clear repayment source, the capital due at the end is a serious risk — see bullet loans.

Which to choose

For most businesses, fixed instalments are safer: the debt clears itself, with no looming capital repayment. Interest-only makes sense only when you have a concrete, reliable source for the final capital — not a hope. If you are unsure you will have the capital at the end, choose fixed instalments. Check the numbers with the loan repayment calculator.

The Credicorp view

Credicorp structures repayments to clear the debt safely over the term, so you are not left with a capital 'bullet' you may struggle to repay — lent to the company with no personal guarantee. Compare our business loans or register to apply. Educational content, not financial advice.

Frequently asked questions

What is the difference between fixed instalments and interest-only?

Fixed instalments cover interest and a slice of capital each payment, so the balance falls steadily and the debt clears by the end of the term. Interest-only pays just the interest during the term, leaving the full capital to repay at the end. One clears the debt for certain; the other keeps payments low but defers the capital.

Is interest-only borrowing risky?

It can be. Because the capital is due in full at the end, you need a concrete, reliable source to repay it — an asset sale, a refinance or a large expected payment. Without that, the final capital is a serious risk. If you are unsure you will have it, fixed instalments are safer.

When does interest-only make sense?

When you expect a specific lump sum to clear the capital and want low payments meanwhile — for instance while waiting on an asset sale or a refinance. It suits that defined case, not general borrowing. For most needs, amortising fixed instalments that clear the debt are the safer choice.