Deferred Payment Loan Calculator

Use the deferred payment loan calculator (or deferred loan calculator) if you would like to know how loan deferment affects your loan repayment. More precisely, you can learn and compare how much interest you would pay and when you would pay off your loan if you defer your loan for a specific period.

Read further, and we explain what is loan deferment so you can get familiar with the loan deferment definition, and also we show how to use the deferred loan calculator.

Few other questions we answer in this article:

• What is deferred payment?
• What does deferred payment mean?
• What is the deferred payment definition?
• How does deferred payment work?

Due to the high specification of the tool, you can use the deferred loan calculator for various loans (credit card payment deferment, mortgage loan deferment, or student loan payment deferred) with different loan deferment options.

If you are more interested in a deferred annuity, check our deferred annuity calculator, which you can employ when planning your retirement.

A loan deferment, is an agreement between the borrower and lender where either some or all of the payment is suspended for a specific period of time. In other words, during loan deferment the borrower is not obliged to make a payment until the end of the deferment.

How the lender handles deferment may differ depending on the given loan construction, the lender's guidelines, and the current legislative environment. In the present deferred payment loan calculator, we introduced multiple options to cover all relevant scenarios, which are the following:

1. Accumulated and capitalized interest

Most of the time, in loan deferment, the borrower can skip all payments till the end of the deferment. In such cases, the lender still calculates and adds (capitalizes) the interest accrued each month (compounded monthly) to the loan balance (principal). This means that the base of the interest calculation will change each month as the previous month's interest is added. We can easily translate this process, also called compounded interest, into a mathematical form:

interest = (balance * (1 + r)ⁱ) - balance

where:

• balance - The opening balance at the beginning of the deferment;
• r - The monthly interest rate; and
• i - The number of months deferment occurs for.

Note, that since the interest accrued during deferment will augment the loan balance, it will further increase the interest cost in the post-deferment period (depending on the remaining repayment periods).

2. Interest is paid during the deferment

In this scenario, which is common in credit card payment deferment, the deferment applies only to the principal payment, which means the borrower is still obliged to pay the monthly interest. Therefore, the loan balance will remain intact, so the monthly interest to be paid will be the same in each deferment period:

interest = (balance * r) * i

Note, that the final cost of opting for a deferment is not simply the interest calculated (either capitalized or paid) for the deferment periods. When you start payments again, the lender will adjust your monthly payment, loan term, or both, depending on your new balance and the type of deferment. This can further raise the amount of interest.

What happens to your loan in the post-deferment period? In general, there are three deferred payment definitions of how your loan is restructured after you start paying your installments again:

1. Increased payments - original term

Suppose your lender does not restructure your original amortization term, that is, your loan term will remain the same. In that case, you need to repay your loan balance in a shorter period (original term shortened by the deferment period), which is only possible if you pay higher monthly payments. Still, because of higher payments, the loan amortization is accelerated, the final interest charge will be lower than with the following two options.

2. Increased payments - extended term

In this deferred payment meaning, the lender will extend the loan term by the deferment period to keep the amortization term unchanged. Therefore, the only factor that will affect your monthly payment is the loan balance at the end of deferment.

3. Original payment - extended term

If your lender lets you keep the original monthly payment, your loan term must be recalculated to have enough time to fully repay your loan balance. If you don't pay interest during deferment, you will have to repay a higher balance with the same payment, implying a longer loan term (longer loan amortization). What's more, the higher loan balance will increase your monthly interest, leading to a higher overall interest charge.

After answering the question "What does deferred payment mean?", let's see how to use the deferred payment loan calculator:

1. As a first step, you need to set the loan inputs:

• Estimation based on - You can choose either the loan term or the monthly payment as the base for the calculation.
• Loan amount - Set the current or the original loan amount here.
• Date of balance - You can set the precise date of your loan amount.
• Loan term - The full or the remaining term of your loan.
• Monthly payment - Here you can set the original monthly installment.
• Interest rate - The annual interest rate.
• Compounding frequency (advanced mode) - How the lender computes interest on the principal.

2. After setting up your current loan, you need to specify the interest calculation during deferment and the type of deferment.

   Before you specify this section, we advise you to check which practice your bank will use.

• Interest treatment:

  • Capitalized (added to the loan balance) - When you set this option, your loan balance will be increased by the accumulated interest while your loan is under deferment (compounded monthly, that is, the interest is added to your principal in each month - check our compound interest calculator to learn more about the concept of compounding).
  • Paid monthly during deferment - In this case, you are obliged to pay the interest each month on your loan balance.
  • Paid in equal parts (accumulated separately) - With this option, your interest is collected in a different account which you need to pay back after deferment in equal parts.
  • Interest-free - If you are lucky to have such an option, your principal balance will remain the same, and the lender doesn't calculate any interest during the deferment.

• Type of repayment after deferment (Repayment by...)

  • Increased payments with the same term - In this case, the original date of loan amortization will remain the same (no adjustment in the loan term), so your monthly payment will be adjusted so that you are able to repay your loan within the remained period.
  • Increased payments with an extended term - When you choose this option, your loan term will be extended by the length of the deferment, resulting in a higher monthly payment.
  • Same payment with extended term - With this scenario, your monthly payments will remain the same, so the loan term will be extended so that you can fully repay your loan.

• Date deferment (Deferment from...) - Set the date when your loan deferment starts.

• Deferment period (Payments deferred for...) - The number of the months your payment is deferred for.

3. Payment summary

In this section, you can compare the original loan (without deferment) to the one with deferment. For example, you can see how your monthly payment is adjusted after the loan deferment or how much interest you need to pay if your loan is deferred.

What's more, you can follow the progression of balances of the two options in a chart and check the schedule of payments.

Suppose your full payment is suspended during the loan deferment, and the interest is added or capitalized monthly on your principal balance. In that case, you can compute the interest of $10,000 for 3 months with 6% interest (which implies 0.5% monthly interest) in the following way.

deferred interest = 10,000 * (1 + 0.005)³ - 10,000 = $150.8

Let's assume the loan amount of $10,000 with 6% interest deferred for 3 months, implying a 0.5% monthly interest. If you don't pay interest during the deferment, that is, the interest is capitalized on your principal balance monthly, you can calculate the balance in the following way:

balance after deferment = 10,000 * (1 + 0.005)³ = $10,150.8

To calculate payment in the post-deferment period, you need to know the loan balance at the end of the deferment, the interest rate, and the remaining loan term. For example, if your balance is $10,000 and the remaining term is ten years (or 120 months) with 6% of annual interest (0.5% monthly interest), the monthly installment is calculated in the following way.

payment = (10,000 * 0.005 * (1 + 0.005)¹²⁰) / ((1 + 0.005)¹²⁰ - 1) = $111.02

If you defer a $100,000 loan with a 6% interest rate for three months (assuming a monthly capitalization of interest), the accumulated interest will be $1.507,5, which can be computed in the following way:

interest during deferment = 100,000 * (1 + 0.005)³ = $1.507,5

You should consider the deferred payment calculator as a model for financial approximation. All payment figures, balances, and interest figures are estimates based on the data you provided in the specifications that are, despite our best effort, not exhaustive.

For this reason, we created the calculator for instructional purposes only. Still, if you experience a relevant drawback or encounter any inaccuracy, we are always pleased to receive useful feedback and advice.