PIK Interest: What Payment-in-Kind Means in Leveraged Finance
Warren Team
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Key terms
- Compound InterestInterest calculated on both the initial principal and accumulated interest from previous periods. Often called 'interest on interest,' it's a powerful force for growing wealth over time.
- Down PaymentAn upfront payment made when purchasing a large item, typically expressed as a percentage of the total cost. Common for home purchases (usually 3-20%) and auto loans.
- Interest RateThe percentage charged by a lender for borrowing money, or earned on savings and investments. Can be fixed or variable depending on the financial product.
- Minimum PaymentThe smallest amount you must pay each month to keep the account in good standing, typically 1-3% of the balance or $25-35, whichever is greater. Paying only the minimum results in expensive long-term interest.
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