Deferred Payment Loan Calculator
Estimate payments and interest costs for loans where payments start later.
Calculate Your Deferred Loan Details
What is a Deferred Payment Loan?
A deferred payment loan allows the borrower to postpone making payments (both principal and interest) for a specified period after receiving the loan funds. This initial "payment holiday" is known as the **deferment period**.
Common examples include:
- **Student Loans:** Many student loans offer deferment while the student is enrolled in school and for a grace period afterward.
- **Promotional Financing:** Some retailers or lenders offer "no payments for X months" deals on large purchases or loans.
- **Certain Mortgages or Business Loans:** Specific loan products might include an initial deferment period.
How Interest Works During Deferment
This is the most critical aspect to understand:
- Interest Accrual:** For most deferred payment loans (like unsubsidized student loans and promotional financing), interest **continues to accrue** on the outstanding loan balance during the deferment period, even though you aren't making payments.
- Capitalization:** At the end of the deferment period, the accrued interest is typically **capitalized**. This means the unpaid interest is added to the original principal balance.
- Higher Future Payments:** Your future monthly payments during the repayment period are then calculated based on this *new, higher* principal balance.
- Exception:** Some loans, like subsidized federal student loans in the US, may have the interest paid by the government during eligible deferment periods, meaning it doesn't capitalize. If this applies, enter 0% for the interest rate during the deferment period calculation (or verify terms).
Pros and Cons
Pros:
- Provides immediate financial flexibility by delaying payments.
- Can help manage cash flow during periods of low income (e.g., while studying).
Cons:
- Interest capitalization increases the total loan cost significantly in most cases.
- Future monthly payments will be higher than if payments started immediately on the original principal.
- Can lead to paying much more interest over the life of the loan.
How to Use This Calculator
- Enter the initial Loan Amount.
- Input the Annual Interest Rate (APR). Enter 0 if interest does *not* accrue during deferment.
- Enter the Deferment Period in Months (how long until payments start).
- Enter the Repayment Term in Years (the duration over which you'll make payments *after* the deferment ends).
- Click "Calculate Deferred Loan".
- The results show the estimated interest accrued during deferment, the loan balance when payments start, the calculated monthly payment for the repayment period, the total interest paid, and the total amount paid overall.
Disclaimer: This calculator provides estimates based on standard deferment and capitalization practices. It assumes a fixed interest rate. Actual loan terms, interest accrual methods, capitalization frequency, and fees can vary by lender and loan type. Always refer to your specific loan agreement for precise details.
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