1. What is Interest Only Loan?

An interest-only loan is a type of loan where the borrower pays only the interest for a certain period, with the principal amount remaining unchanged during this period.

2. How Does the Calculator Work?

The calculator uses the interest-only loan formula:

Where:

• \( P \) — Principal amount (currency)
• \( R \) — Monthly interest rate (decimal)
• \( EMI \) — Monthly payment (currency)

Explanation: The formula calculates the monthly interest payment by multiplying the principal amount by the monthly interest rate.

3. Importance of Interest Only Payment Calculation

Details: Calculating interest-only payments helps borrowers understand their monthly obligations during the interest-only period and plan their finances accordingly.

4. Using the Calculator

Tips: Enter the principal amount in currency and the monthly interest rate as a decimal (e.g., 0.05 for 5%). All values must be valid (principal > 0, interest rate between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: What is an interest-only period?
A: An interest-only period is a specified timeframe during which the borrower pays only the interest on the loan, not reducing the principal balance.

Q2: What happens after the interest-only period ends?
A: After the interest-only period, the borrower must start paying both principal and interest, which may result in higher monthly payments.

Q3: Are interest-only loans suitable for everyone?
A: Interest-only loans can be beneficial for those with irregular income or expecting future cash flows, but they carry risks as the principal remains unpaid during the interest-only period.

Q4: How is the monthly interest rate calculated from annual rate?
A: Monthly interest rate = Annual interest rate / 12. For example, 6% annual rate = 0.06/12 = 0.005 monthly rate.

Q5: Can I make principal payments during the interest-only period?
A: This depends on the loan terms. Some loans allow optional principal payments, while others may restrict or penalize early principal payments.