Disadvantages of Single Payment Loans

Single payment loans are loans that are due at maturity. There are no periodic payments associated with a single payment loan, as in the case of an installment loan.  The loan interest and principal payment are calculated upfront and is the amount that is payable when the loan reaches it maturity date.

These loans provide a way for an individual borrower or business to obtain upfront financing and use the cash flow that would normally go toward debt repayment for other purposes.  The chief disadvantage of these loans is the fact that the loan amount must be paid in full.

Payment Is Due at Maturity

The disadvantage of a single payment loan is the repayment terms.  Because the loan is payable on demand at maturity, a borrower that does not budget or plan carefully may find themselves facing a loan default and additional interest charges and penalties.

A borrower considering a single payment loan should create a budget or plan that allows the loan’s terms to be met without affecting their credit rating or future borrowing ability.

 


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