Interest-only loans offer various repayment methods, including endowments, ISAs, pensions, or asset sales. Flexibility and tax efficiency vary by option, requiring tailored advice. Life assurance and pension arrangements are external services.
Interest-Only Loans involve payments made solely toward interest, with the capital repaid at the end of the borrowing term using various methods:
Endowment Loans: These deferred capital repayment contracts include a parallel endowment policy assigned to the lender, offering guaranteed life cover and an investment component to repay the capital borrowed and potentially provide surplus funds. Options such as 'low-cost' or 'low-start, low-cost' endowment policies are available, though new sales are discouraged due to poor historic investment performance.
ISA Loans: Individual Savings Accounts (ISAs) provide a tax-efficient way to generate a lump sum to repay the loan at term's end. Borrowers should additionally secure life cover. Note that not all lenders accept ISA loans.
Pension Loans: Monthly contributions to a pension plan generate both an annual pension and a lump sum at retirement, of which a portion is used to repay the loan. Life cover is required for borrowers. These plans are highly tax-efficient, with contributions qualifying for tax relief within Inland Revenue limits.
Existing policies may be integrated into new arrangements, ensuring the most suitable options for your circumstances.
True Interest-Only Loans: Some lenders allow interest payments without a formal capital repayment plan, relying instead on the sale of assets, inheritance, or other sources. These options offer flexibility but are uncommon for commercial borrowing.
We emphasize that life assurance and pension arrangements fall outside our services, as we act solely as introducers.
Learn more, contact Nationwide Business Finance to find out the best options available for your needs.
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