What lending "al rédito" (interest-only) means
By Equipo Prestafolio
The client only pays interest, the principal never drops until the end: what lending "al rédito" means, how it compares to a fixed instalment, and the risk almost nobody sees coming.
Lending "al rédito" (interest-only) means the client pays you only the interest each instalment, and the full principal is returned all at once at the end, or the loan is renewed. It is one of the oldest ways of lending money in the region, and it remains a favourite among many informal lenders because it is easy to explain: "you pay me RD$500 a month in interest until you return the RD$10,000." What almost nobody explains alongside the definition is how much it changes your profit, and your risk, compared with a traditional fixed instalment.
The definition, straight up
| Al rédito (interest-only) | Fixed instalment (traditional) |
|---|---|---|
What the client pays each instalment | Interest only | Part principal + part interest |
How the outstanding principal moves | Does not drop until the last instalment | Drops with every instalment |
What interest is calculated on | Always the full original principal | The remaining balance, which shrinks each time |
When the principal is returned | All at once, at the end (or renewed) | Little by little, spread across each instalment |
The word "rédito" is, literally, another word for "interest" or "yield." Lending al rédito is, in the simplest sense, lending while charging only that periodic yield, without touching the principal until maturity.
The example that shows the real difference
Compare the same loan, RD$10,000, 5% monthly, 4 instalments, under both systems:
System | Instalments 1-3 | Final instalment | Total paid | Your profit |
|---|---|---|---|---|
Fixed instalment (French) | RD$2,820.12 | RD$2,820.12 | RD$11,280.48 | RD$1,280.47 |
Al rédito (interest-only, "American system") | RD$500.00 | RD$10,500.00 | RD$12,000.00 | RD$2,000.00 |
With the same nominal rate (5% monthly) and the same term, lending al rédito leaves you more than 700 pesos of extra profit on the same loan. The reason is simple: with a fixed instalment, interest is calculated on a balance that drops every month, so you charge less interest in absolute terms each time. Al rédito, interest keeps being calculated on the full original principal, month after month, because the principal never drops until the end.
Why it is more profitable, but also riskier
That same feature (the principal does not drop) is what explains the risk:
The principal never drops until the last instalment. If the client defaults at the end, you lose 100% of the principal, not a fraction that was already recovered in earlier instalments the way it would be with a fixed instalment.
With a fixed instalment, if the client defaults on the last instalment of a 4-month loan, you have already recovered most of the principal in earlier instalments: your loss is a small fraction. With an al rédito loan, if the client defaults on that same final instalment, your loss is the entire principal, because nothing was ever amortised before. This is the central trade-off of lending al rédito: more profit while everything goes well, more exposure if something goes wrong at the end.
The two variants within the same concept
Within "al rédito" there is a nuance worth knowing, because it changes the total paid:
Variant | What happens on the last instalment | Total for the example (RD$10,000, 5%, 4 instalments) |
|---|---|---|
Interest-only (American system) | The last instalment carries principal + its own interest | RD$12,000 |
Open (promissory note) | The last instalment is principal only, with no additional interest on it | RD$11,500 |
The difference between the two is small per instalment, but it shows up in the total: "interest-only" charges interest across all 4 instalments, while "Open" only charges interest on the first 3, because the last one is purely the return of principal. See the full comparison of all five systems in Loan types.
When lending al rédito makes sense
Client's situation | Why it fits |
|---|---|
Seasonal income (sells a harvest, gets paid on a big contract) | Can sustain the monthly interest while waiting for that specific income to settle the whole principal at once |
Short-term working capital | Needs the money available for a defined period and knows exactly when they will be able to return it in full |
A client who would rather renew than settle | The "Open" (promissory note) loan is precisely the one that gets renewed most at maturity, instead of settled. See Renewing a loan |
When it does NOT make sense
Signal | Why it is a bad idea |
|---|---|
The client has no clear event that lets them settle everything at the end | Without that event, "at the end" turns into one renewal after another, and the principal never drops |
They already have a history of late payments | The risk of losing 100% of the principal on the last instalment is too high for a client who has already shown signs of not paying well. See How to tell if a client pays well |
The amount is a large share of your total capital | Concentrating a lot of capital in a loan where 100% is riding on a single final instalment raises your portfolio risk |
The perpetual renewal trap
There is a quiet trap in interest-only lending, and it is worth stating clearly: if a client never settles the principal and just keeps renewing the loan, instalment after instalment, month after month, they pay interest indefinitely without their debt ever going down. For the lender it is a stable income; for the client, if it was not a conscious decision, it can turn into a burden that never gets resolved. A good lender watches this as closely as their own profit: a client who renews over and over with zero progress on principal is a signal to have a conversation, not just to keep collecting. See How much money can you make lending money? for how this factor feeds into your real profitability.
Frequently asked questions
Is "al rédito" the same as a predatory loan? Not necessarily: the structure (interest only, principal at the end) is independent of whether the rate is reasonable or abusive. You can lend al rédito at a perfectly legal rate, or lend with a fixed instalment at a usurious rate. What decides legality is the rate, not the structure. See Is it legal to lend money with interest?.
Can I charge arrears on an al rédito loan? Yes, just like with any other loan type: if the client does not pay the interest instalment on time, arrears can be applied to that overdue instalment. See How to calculate arrears on a loan.
Can an al rédito loan later be converted into a fixed-instalment one? In Prestafolio, the loan type can be changed while the loan has no payments recorded; once payments start, it is locked. If you need to change the structure of a loan that already has payments, the route is renewing it with the new type. See Loan types.
Summary
- Lending al rédito means charging only interest each instalment, with the full principal returned at the end (or renewed).
- At the same nominal rate, it earns more than a traditional fixed instalment, because interest is always calculated on the original principal, not a shrinking balance.
- The risk is just as direct: if the client defaults at the end, you lose 100% of the principal, not an already-recovered fraction.
- There are two variants (interest-only/American and Open/promissory note), which differ in whether the last instalment carries extra interest or not.
- Watch for perpetual renewal: a client who never settles the principal is a signal to talk, not just to keep collecting interest.
Prestafolio automatically calculates al rédito loans, both in the "Interest-only" and "Open" variants, with the same engine it uses for the other three amortisation systems, so you can compare which suits you before lending: see Loan types and Simulating a loan.