1. What is Interest Only Calculation?

The interest-only calculation determines the periodic interest payment on a promissory note where only interest is paid during the term, with the principal repaid at maturity.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( Principal \) — Loan amount in USD
• \( Rate \) — Interest rate in decimal form (e.g., 0.05 for 5%)

Explanation: This calculates only the interest portion of a payment, not including any principal reduction.

3. Importance of Interest Calculation

Details: Accurate interest calculation is crucial for understanding loan costs, budgeting payments, and comparing different loan options.

4. Using the Calculator

Tips: Enter principal in USD, rate in decimal form (e.g., 0.075 for 7.5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest-only and amortizing loans?
A: Interest-only loans require only interest payments during the term, while amortizing loans pay both principal and interest.

Q2: How do I convert APR to decimal?
A: Divide the percentage by 100 (e.g., 8.25% becomes 0.0825).

Q3: Is this calculation for simple or compound interest?
A: This calculates simple interest for a single period. Compound interest requires a different formula.

Q4: When are interest-only loans typically used?
A: Common in bridge loans, some mortgages, and commercial lending where cash flow is prioritized.

Q5: Does this account for payment frequency?
A: No, this shows total interest for the period. Divide by number of payments for per-payment amounts.