Quick answer
Prepaid interest means the interest for a set period is paid up front, usually deducted from the loan amount, so no repayments fall due during that period. Capitalised interest means interest is added to the loan balance as it accrues and repaid at the end. Both remove regular repayments on property-secured loans; prepaid reduces what you receive, capitalised increases what you repay.
Key points
- Both remove regular repayments during the term
- Prepaid: interest deducted up front, less cash received
- Capitalised: interest added to the balance, more to repay at the end
- Suits businesses waiting on a sale, refinance or recovery
One of the most useful features of property-secured business loans is that they can be set up with no regular repayments. There are two ways to do that: prepay the interest or capitalise it. They achieve the same thing for cash flow but work very differently in the numbers.
Prepaid interest
The interest for an agreed period, often the whole term or the first twelve months, is calculated up front and paid at the start, usually by deducting it from the loan amount.
- What you receive: the loan amount minus the prepaid interest and fees.
- During the term: nothing to pay for the prepaid period.
- At the end: repay the loan amount.
Prepaid interest gives certainty: the interest cost is known and settled on day one.
Capitalised interest
Interest accrues as normal but, instead of being paid, it is added to the loan balance.
- What you receive: the loan amount minus fees.
- During the term: nothing to pay.
- At the end: repay the original amount plus all the capitalised interest.
Because interest is added to the balance, later interest may be charged on earlier interest, so the total can grow faster over longer terms.
Prefer to talk it through? Start with the 60-second enquiry so the first call is about options, not paperwork. No credit check at this stage.
Side by side (illustrative)
| Prepaid | Capitalised | |
|---|---|---|
| Loan amount | $300,000 | $300,000 |
| Interest cost (example only) | Deducted at the start | Added over the term |
| Cash received | Less | More |
| Repayments during term | None | None |
| Amount to repay at the end | $300,000 | $300,000 plus interest |
| Main advantage | Cost fixed up front | More cash now |
The figures are illustrative only; every loan is priced on its own circumstances.
Which suits which situation
- Waiting on a property sale: either works; capitalised gives more cash now, prepaid gives certainty.
- Business recovering after a tough year: capitalised keeps more cash in the business.
- Fixed budget for a project: prepaid makes the cost certain.
- Uncertain term: check how each option handles early repayment or an extension.
Questions to ask
- What is the total amount repayable under each option?
- What happens to prepaid interest if I repay early?
- How is capitalised interest calculated, and how often is it added?
- Can I switch to regular repayments later?
Do not lose sight of the exit
No repayments during the term does not mean no cost. The loan still has to be repaid, usually in one go. Make sure the source, whether a sale, a refinance or trading cash, is realistic. Our guide to exit strategies explains how to plan it, and the repayment calculator shows the payout figure for a no-repayment loan.
Where to go from here
- Property-secured business loans: Property-secured business loans from $20k to $5m against residential or commercial property, with no valuation needed and flexible repayment options.
- Exit strategies for short-term property loans: How to plan the exit from a caveat loan, second mortgage or bridging loan: sale, refinance, receivable or trading cash, plus a plan B if timing slips.
- Bridging finance for business: Business bridging finance covers the gap until a sale, settlement or refinance completes. How it works, how it is secured and how to plan a safe exit.
- Total cost of finance, explained: Total cost of finance is everything you repay above what you receive. How to calculate it from any quote and use it to judge whether a loan is worth it.
Key terms, in plain English
- Caveat: a formal warning recorded against a land title, telling anyone who searches it that a lender claims an interest in that property.
- Second mortgage: a mortgage registered after the home loan already on the title, so it is paid out second if the property sells.
- Total cost of finance: the dollar gap between the cash that reaches your account and everything you hand back over the life of the loan, fees included.
- Capitalised interest: interest that rolls into the balance owing rather than leaving your account each month.
Five things to confirm with any lender
- What is the full cost of this finance in dollars over the whole term?
- Can I repay early, and will that cost extra?
- Is there a fee on the unused part of the limit?
- Who needs to sign or guarantee the loan?
- What exactly triggers a default under the contract?
Getting advice alongside funding
Funding decisions often have tax, legal or family consequences. Talk to your accountant about how repayments, interest and any asset purchases will be treated, and to a lawyer if property, guarantees or a change of structure are involved. Getting advice before you sign is far cheaper than unwinding a decision afterwards, and it usually makes the application stronger too.
Quick recap
- Both remove regular repayments during the term
- Prepaid: interest deducted up front, less cash received
- Capitalised: interest added to the balance, more to repay at the end
- Suits businesses waiting on a sale, refinance or recovery
From enquiry to an answer
One enquiry, one team, one clear answer. That is the whole approach. We read what you send, call you, ask for the documents that matter and lay out the options in plain English with the total cost attached. Your details are not shopped around, and your credit file is only checked if you choose to accept an offer. If the answer is no, you will hear it quickly and with a reason, so you can plan your next move.
A quick test before you borrow
Good borrowing has a job and an end date. Before you enquire, write down in one sentence what the money is for and how it will be repaid. If that sentence is easy to write, you are probably in the right place. If it is not, it is worth a closer look at the business’s cash flow before taking on new repayments.
Paperwork worth gathering
A short checklist before you send the enquiry. None of it takes long, and together it heads off the most common causes of delay:
- Know the amount you need and what it will pay for.
- Check your recent bank statements so nothing in them surprises you.
- Note any loans, leases or payment plans the business is carrying.
- If you own property, know who is on the title and what is owed.
- Make sure every director or co-owner knows you are applying.
About the questions we ask
Think of the enquiry as the brief for your funding. A clear brief gets a fast, accurate answer. Give the amount you genuinely need, the revenue your bank statements will show, an honest view of your credit and a straight yes or no on property, and we can match you to the right option on the first attempt.
See what you could qualify for
Ready when you are. Send your enquiry and a real person will review it and call you back. There is no credit check to enquire and no selling of your details. The only thing we ask is accuracy: tell us what you really need, what the business really turns over and how your credit really looks, so the first match is the right match.
Frequently asked questions
Which is cheaper, prepaid or capitalised interest?
It depends on the loan and the term. Capitalised interest can compound, so the total can be higher. Compare the total amount repayable under each option.
Do I get a refund of prepaid interest if I repay early?
It depends on the loan terms. Ask before signing what happens to prepaid interest if the loan is repaid early.
Can I switch from capitalised to regular repayments?
Some loans allow it. Ask whether you can start making repayments once trading improves.
Why would a business want no repayments?
When cash is needed for recovery or growth, or when the loan will be repaid from a lump sum such as a sale or refinance.
Is interest still charged if there are no repayments?
Yes. Interest is charged either way; it is just paid up front or added to the balance.
Ask right here, it takes a minute
The same 60-second enquiry, on this page. No credit check to enquire, and the person who reads it is the person who calls you.