How to Calculate Interest-Only Loan Payment
Calculating an interest-only loan payment is rather simple and can be done with a regular calculator. The borrower needs to know the loan amount and the interest rate. In the case of an interest-only loan, the term does not matter. The borrower is merely paying the interest due each month and not reducing the principal.
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Instructions
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1
Input your loan amount into your calculator.
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2
Multiply your loan amount by the interest rate, in decimal places. To convert the interest rate into decimals, multiply the rate by 100, or simply move the decimal place over two spaces to the left.
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3
Divide the total in Step 2 by 30 to get an average monthly payment. To get an exact monthly payment, divide the total by 365 to find your daily interest. Multiply your daily interest by the number of days in the month or billing cycle to find the exact payment for that month.
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Tips & Warnings
Remember that interest-only payments will vary based upon the days in the billing cycle, or if the borrower makes a principal-reduction payment.
Interest-only loans can be risky, especially if the rate is variable or only fixed for a short term. Also, at some point, the borrower will be asked to pay a principal-reduction payment, which will be a lump sum. The borrower should consider all of these risks prior to procuring an interest-only loan.
