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What is the grace period of capital?
A grace period of capital is a period of time at the beginning of a loan during which the debtor only has to make limited paybacks. For the investor this means that at the end of the loan period he/she will earn a greater amount of interest on his/her loans, as the interest rate will be calculated over the whole amount invested. When the grace period of capital is over, the investor will be paid interest rate and capital amortizations (repayment of capital owed by promoter) - from this moment onwards, the interest rate is calculated over the capital invested, that has not been paid yet (so, the returns will decrease as the loan time goes by).
Also, this period supports the promoters and limits their obligations at the start of the project, as they are not required to pay back the capital owed, except for the interest. For this reason, during this period, investors will only be paid the agreed interest. Once this period ends, the normal payments will start, which will consist of both capital and interest, as previously mentioned.
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