1. What is an 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 balance remaining unchanged during this time.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( Principal \) — The original loan amount
• \( Rate \) — The periodic interest rate (in decimal form)

Explanation: This calculates the interest payment due for one period on an interest-only loan.

3. Importance of Interest Calculation

Details: Understanding your interest payments helps with budgeting and financial planning, especially during the interest-only period of a loan.

4. Using the Calculator

Tips: Enter the principal amount in dollars and the interest rate as a decimal (e.g., 5% = 0.05). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest-only and amortizing loans?
A: With interest-only loans, you pay only interest initially; with amortizing loans, each payment covers both principal and interest.

Q2: How often are interest payments typically made?
A: Usually monthly, but the frequency depends on the loan terms.

Q3: What happens after the interest-only period ends?
A: Payments typically increase as you begin paying both principal and interest.

Q4: Are interest-only loans good for all situations?
A: They can be beneficial for short-term financing or when expecting higher future income, but may cost more long-term.

Q5: How does this differ from compound interest?
A: This calculates simple interest for one period; compound interest would include interest on previously accrued interest.