What type of loan does NOT require regular principal payments until the loan's maturity?

What type of loan does NOT require regular principal payments until the loan's maturity?

• A. Fixed-rate mortgage
• B. Term loan
• C. Equity loan
• D. Conventional loan

Answer: (B)

A term loan is characterized by its repayment structure, which typically allows for interest-only payments for a set period, followed by a lump sum payment of the principal at maturity. This type of loan does not necessitate regular principal payments throughout its duration, making it distinct from other loan types where both principal and interest are paid consistently over the term of the loan. In contrast, a fixed-rate mortgage, for example, involves regular monthly payments that include both principal and interest, gradually reducing the loan balance over time. Similarly, conventional loans usually require consistent payments throughout the loan term, featuring both interest and principal. An equity loan, often referred to in the context of a home equity line of credit or home equity loan, also involves scheduled payments including both principal and interest. Thus, the defining feature of a term loan is its unique payment schedule, where regular principal payments are deferred until the loan matures, making it the correct answer to the question.

A term loan is characterized by its repayment structure, which typically allows for interest-only payments for a set period, followed by a lump sum payment of the principal at maturity. This type of loan does not necessitate regular principal payments throughout its duration, making it distinct from other loan types where both principal and interest are paid consistently over the term of the loan.

In contrast, a fixed-rate mortgage, for example, involves regular monthly payments that include both principal and interest, gradually reducing the loan balance over time. Similarly, conventional loans usually require consistent payments throughout the loan term, featuring both interest and principal. An equity loan, often referred to in the context of a home equity line of credit or home equity loan, also involves scheduled payments including both principal and interest.

Thus, the defining feature of a term loan is its unique payment schedule, where regular principal payments are deferred until the loan matures, making it the correct answer to the question.