Waterfall Payment Scheme – Definition

Cite this article as:"Waterfall Payment Scheme – Definition," in The Business Professor, updated January 11, 2019, last accessed October 25, 2020, https://thebusinessprofessor.com/lesson/waterfall-payment-scheme-defined/.

Back toBANKING, LENDING, & CREDIT INDUSTRY

Waterfall Payment Definition

Waterfall payments are part of complex payment arrangements involving multiple loans of differing priority (split into “tranches”). Generally, higher-interest loans receive interest and principal payments before lower-interest-rate loans receive any payment of principle. The lower rate loans are paid only interest until the more expensive loans are paid in full.

Most waterfall payment schemes become complex by only paying the minimum interest to all tiers or loan tranches during each payment cycle.

References for Waterfall

http://www.businessdictionary.com/definition/waterfall-payment.html
https://en.wikipedia.org/wiki/Waterfall
https://dictionary.cambridge.org/dictionary/english/waterfall
https://www.investopedia.com/terms/w/waterfallpayment.asp

Was this article helpful?