What is a principal plus specified interest loan?

A principal plus specified interest loan is characterized by the structure that combines the repayment of the principal amount borrowed with specified interest payments over a defined term. This means that the borrower is required to repay not just the interest accrued on the loan but also portions of the principal, which reduces the overall debt over time.

This type of loan typically has a clear repayment plan, where borrowers can see how much they will need to pay towards the principal and how much will go towards interest. It differs from loans that may only require interest payments for a period or loans that are structured without a clear repayment framework.

Understanding this structure is crucial for borrowers because it affects their overall financial planning and the total cost of the loan throughout its duration. The clarity in repayment terms helps borrowers manage their finances better and ensures they are aware of their obligations as they proceed with payments.