Which type of note allows a borrower to pay off the principal with the last installment of interest?

A straight note, also known as a term note, is characterized by the structure where the borrower pays only interest for the duration of the loan, with the entire principal amount due at the end of the term. This means that throughout the life of the loan, the borrower makes regular interest payments but does not reduce the principal balance until the final payment is made.

In practical terms, this arrangement can be beneficial for borrowers who may want to keep initial payments lower or have a strategy for paying off the principal at a later date. The final installment will include the total outstanding principal, making it a significant payment at the end.

Other types of notes have different structures of repayment. For example, an amortized note involves payments that include both interest and principal over the life of the loan. A balloon note has a similar periodic payment structure as an amortized note but requires a large final payment at the end of the term. An adjustable-rate note has varying interest payments that change based on market conditions, but does not specifically align with the structure described in the question.