This free online Loan Interest Payment Calculator will calculate the interest-only payment due for the current period.
An interest-only loan is where you as the borrower simply pay the accruing finance charges on the money borrowed, which means that the amount you owe never decreases. At the end of the loan's stated term you will need to either convert the balance owed to a conventional loan, or pay the loan off with cash or other liquid assets.
To calculate interest on a loan balance, you divide the decimal form of the annual percentage rate by the number of payment periods per year, and then multiply that result by the current balance owed.
For example, if your current balance was $10,000 on a 12%, monthly payment loan, the current finance charge would be $100.00 (.12 ÷ 12 x 10,000). If you fail to make the $100 interest payment, then that amount may be added to your loan balance -- in which case you would end up paying finance charges on finance charges.
The benefit of an interest only loan is that you get to collect a lot more finance charges from the borrower without having to do any extra paperwork.
Oh, did you mean what is the benefit to the borrower? I can't think of any benefit to the borrower so I assumed you were referring to the benefit to the lender. Sorry.
As a borrower, if you can't make a full principal and interest payment (PIP) the last thing you want to do is let the finance charges pile onto the loan balance. That is, unless your purpose is to help your lender's CEO to expand his swimming pool to Olympic size.
If that's not your intention then you will probably want to limit your interest-only loan payments to times when there is simply no other less costly alternative.
With that, let's use the loan interest payment calculator to calculate the current period finance charges.
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Current balance owed: The current balance owed on the loan (loan payoff). If you don't see this amount listed on your current statement, call your lender and ask for the current payoff amount.
Annual percentage rate: The loan's stated annual interest rate. Enter as a percentage (for .065, enter 6.5%).
Loan's stated payment frequency: Select the loan's stated payment frequency from the drop down menu. The available payment frequencies are Weekly, Bi-weekly, Semi-monthly, Monthly, Bi-monthly, Quarterly, Semi-annually, and Annually.
Interest only payment: This is the amount of the finance charges you owe on the principal balance for the current period. If you fail to pay at least this amount, your principal balance will increase.