Interest Only Loans

Paying off your debt or loans may be difficult if you don't have enough funds to cover them. Interest only loans allow you to pay off only the interest as to give you ample time for the principal. People who have difficulty paying the loan amount apply for these loans. They will have to pay only the interest for a specified period of time.

Advantages of Interest Only Loan

The conversion of the principal loan to interest only loan has many advantages that can ease your financial situation. For instance, the lower monthly payments for the interest only will allow you to save sufficient amount of money. In this way, you can effectively plan the repayment of the principal.

The amount that you are going to pay monthly will be smaller compared to the principal and will give you time to save or find a new and better paid job. It may be a bit tricky as you need good financial management skills. Do not expect to gather the whole amount by drawing the lucky lottery ticket. You have to save your income and find additional sources of funding. Usually, the interest rate will differ in comparison to a regular loan, but it will be at a manageable level. In Canada, interest only loans also allow you to pay off the interest, with payments for the principal delayed for a future period.

Applying for Interest Only Loans

In order to qualify for an interest only loan in Canada, you must have an outstanding loan payment history and prove sufficient income to pay off the interest rate. A proof of income or another source of funding will suffice. Head off to your nearest bank and fill an application for the loan. The bank will examine your credit record and all required documentation before deciding on whether to grant you the loan.

Risks to Consider

Some experts argue that there are risks associated with interest only loans. You may face penalties if you don't make regular payments to cover for the interest rate. The interest only loan allows you to keep your good credit record and buys some time before you have to pay off the principal. In any case, you should be careful with this type of loan because a sudden income cut can jeopardize your ability to pay off the interest rate.

Usually, the loan payment rates span over a period of five years. This repayment period is comparatively long and gives you enough time to plan your expenses in appropriate fashion. However, keep in mind there is always risk of unexpected expenses you have to cover. When you prepare your financial strategy, include an amount of money for such unexpected expenses. Interest only loans offer a great advantage in allowing ample time to save for the payment of the principal, but if you aren't able to keep up with the payments, you will face augmented financial burden. If you don't see yourself saving, finding a second job, moving up the ladder at your company (finding a better job), you might think of applying for another loan.