Deferred Payment Loan Calculator

Understanding Deferred Payment Loans

A deferred payment loan allows borrowers to postpone making payments for a specified period after loan origination. Common examples include student loans during grace periods, promotional financing (e.g., "no payments for 12 months"), disaster relief loan forbearance, and balloon payment mortgages.

How Interest Accrual Works During Deferral

Depending on loan terms, interest during the deferral period is treated in one of three ways:

• Capitalized Interest: Interest accrues monthly during deferral and is compounded directly into the principal balance before repayment starts.
• Simple Uncapitalized Interest: Interest accrues linearly on original principal without compounding, then is added to total loan cost.
• Subsidized / 0% Interest: No interest accrues during deferral (e.g., subsidized federal student loans).

Formula for Deferred Loan Amortization

For a capitalized deferral period of $m$ months at monthly rate $i = \frac{r}{12}$, the starting balance for repayment $P_{\text{def}}$ is:

$$P_{\text{def}} = P \times (1 + i)^m$$

The monthly payment $M$ for repayment term $n$ months is given by:

$$M = P_{\text{def}} \times \frac{i(1 + i)^n}{(1 + i)^n - 1}$$