Waterfall Payment Scheme - Explained
What is a Waterfall Payment Scheme?
Written by Jason Gordon
Updated at April 18th, 2022
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What is a Waterfall Payment Scheme?
A waterfall payment is a payment scheme in which higher-interest loans or higher-tiered creditors receive payment before lower-interest loans or subordinate lenders receive payment. A waterfall payment is a payment (repayment) scheme under complex payment arrangements, it is used for multiple loan arrangement with varying degree of hierarchy and priority. In waterfall payments, multiple loans are split into tranches and higher loans receive interest and principal before lower ones receive any payment of interest. All tiers of loan tranches receive payment in the payment circle but this is done based on hierarchy. For instance, higher-tiered creditors are paid back in full before the lower ones receive principal payments.
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