Loan Calculator With Deferment Period

Loan Payment Formula with Deferment:

\[ \text{New PV} = PV \times (1 + r)^d \] \[ PMT = \text{New PV} \times \frac{r}{1 - (1 + r)^{-n}} \]

Initial Principal (PV):

USD

Annual Interest Rate:

Deferment Period:

months

Repayment Term:

months

Adjusted Principal (New PV):

Monthly Payment (PMT):

Unit Converter ▲

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1. What is a Loan with Deferment Period?

A loan with a deferment period allows the borrower to postpone payments for a set time, though interest typically continues to accrue and capitalize (get added to the principal balance). This is common with student loans and some business loans.

2. How Does the Calculator Work?

The calculator uses two formulas:

\[ \text{New PV} = PV \times (1 + r)^d \] \[ PMT = \text{New PV} \times \frac{r}{1 - (1 + r)^{-n}} \]

Where:

\( PV \) — Initial loan principal (USD)
\( r \) — Monthly interest rate (annual rate ÷ 12)
\( d \) — Deferment period in months
\( n \) — Repayment term in months
\( \text{New PV} \) — Adjusted principal after deferment
\( PMT \) — Monthly payment amount

Explanation: First calculates the new principal after interest capitalization during deferment, then calculates the payment based on this higher amount.

3. Importance of Deferment Calculation

Details: Understanding the true cost of deferment helps borrowers make informed decisions about whether to make interest payments during deferment or allow capitalization.

4. Using the Calculator

Tips: Enter the initial loan amount, annual interest rate, length of deferment period, and repayment term. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between deferment and forbearance?
A: Deferment often has interest subsidies for certain loans (like federal student loans), while forbearance always accrues interest.

Q2: How does capitalization affect total loan cost?
A: Capitalization increases the principal, so you pay interest on interest, increasing total repayment amount.

Q3: Is deferment always a bad idea?
A: Not necessarily - it provides payment relief when needed, but understanding the long-term cost helps make better decisions.

Q4: Can I make payments during deferment?
A: Yes, making interest payments during deferment prevents capitalization and reduces total cost.

Q5: How accurate is this calculator?
A: It provides a good estimate, but actual loan terms may vary based on lender policies and rounding methods.