The main benefit of an interest only loan is that it gives the borrower added flexibility. With a P&I loan, the lender expects a small amount of the principal to be paid off each f/n or month. Each time this occurs, the effective credit limit of the loan is also reduced. Also, your minimum monthly commitment is higher.
An Interest only loan can easily be set up to have a repayment taken from your account that is greater than the interest due, and will also allow you to pay the principal down just the same as a P&I loan. The added flexibility is that the amount that has been paid off the principal can be accessed later (as available redraw), and if you anticipate your income might be tight for a given period, you can also keep your monthly commitment to a minimum by reducing your monthly repayment to only the accrued interest.

P&I = 1 choice. A principal and Interest repayment and no further access to your funds.
I/O = Several choices. Choose your monthly payment, Access you money in the future, Maintain an available credit limit.

I hope that helps.