Interest-only period

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-01

// THE SHORT ANSWER

An interest-only period is a stretch at the start of a term loan, or one agreed later, during which the borrower pays interest but no principal. It suits an asset that takes time to earn — a new plant commissioning, an orchard coming into bearing — or a business through a bad season. Its cost is that the exposure does not fall while the clock runs, so the debt is still at its peak when the period ends, and a desk reads a request to extend one as a question about whether the repayment schedule was ever right.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.