How to Calculate Payment in Lieu of Interest for an Unpaid Debt

Borrowing money without interest means using money that isn't yours for free.

It can be quite complicated to calculate the payments on a loan with continuously compounding interest---that is, interest that keeps getting larger because it also applies to the interest itself. But what if you have a loan that doesn't carry any interest with it? Maybe a loan from a friend or family member for a personal expense. In that case, the calculation is much simpler and only requires that you know how much you borrowed and how quickly you want to pay it back.

Instructions

1. Determine your principal, or the total amount of debt you own. For example, you might owe a relative $6,000 for helping you out with a down payment on your first home.

2. Determine how long you have to pay the loan back in terms of pay periods. For example, if you have five years to pay the debt back and have to make payments monthly, you'll have 60 total pay periods (months) to pay it back.

3. Divide the principal from Step 1 by the number of pay periods from Step 2 to find your payment amount. In the example, $6,000 divided by 60 is a payment of $100 per month to pay back $6,000 in five years with no interest.

4. If you want to speed up or slow down the rate of repayment at any time, just repeat these steps for the amount you have left to pay and the new time period.

References

• University of Guam: Calculating Loan Interest