What characterizes an interest accruing loan?

An interest accruing loan is characterized by the fact that no interim payments of interest or principal are made during the life of the loan. Instead, interest accumulates over time and is typically paid in a lump sum at the end of the loan term or upon maturity. This means that the borrower does not make regular payments over the course of the loan, leading to a growing total amount owed due to the compounding of interest.

This setup can be advantageous for borrowers who may not have the cash flow to make regular payments but is also important to recognize the potential for a larger final payment. Other options, like making regular payments on both principal and interest, would describe a fully amortized loan instead, while fixed interest rates refer to the terms of the loan rather than its structure as an interest accruing loan. Lastly, the gradual repayment of principal is indicative of amortized loans, not interest accruing loans where the principal remains unpaid until the end.