How the Deferred Payment Loan Calculator works
A deferred payment loan lets you skip payments for an initial period after the loan is disbursed — common with retailer "no payments for 12 months" financing, some auto loans, and certain student or medical loans. No payments are due during deferment, but interest still accrues on the principal. This calculator applies the standard two-stage method lenders use: accrue and capitalize interest through the deferment period, then amortize the resulting balance over the repayment term.
Stage 1: interest accrual during deferment
With compound accrual (the more common structure), interest is calculated on the growing balance every month, so the deferred balance is B = P × (1 + i)d, where P is the original principal, i is the monthly interest rate (APR ÷ 12), and d is the number of deferment months. With simple accrual, interest is calculated only on the original principal for the whole period and added once: B = P × (1 + i × d). At the end of deferment that accrued interest is capitalized — folded into the balance — so you subsequently pay interest on the interest, not just the original principal.
Stage 2: amortizing the capitalized balance
Once repayment begins, the capitalized balance B is paid off like any standard installment loan using the amortization formula PMT = B × i / (1 − (1 + i)−n), where n is the number of monthly payments in the repayment term. If the interest rate is 0%, this reduces to PMT = B / n.
Worked example
Borrow $15,000 at 6.5% APR with 12 months deferred and a 5-year repayment term. The monthly rate is 6.5% ÷ 12 ≈ 0.5417%. With compound accrual, the balance grows to roughly $16,005 by the end of deferment (about $1,005 of capitalized interest). Amortizing $16,005 over 60 months at that same monthly rate gives a payment of roughly $313/month, for a total of about $18,789 repaid — around $3,789 of interest across the full loan, more than the roughly $2,610 you would pay on the same $15,000 loan with no deferment at all.
Why deferment raises total cost
Skipping payments does not skip interest — it just postpones when interest starts compounding into the balance you eventually amortize. The longer the deferment and the higher the rate, the more the capitalized balance grows before repayment even starts, which raises both the monthly payment and the lifetime interest compared to a loan with the same rate and term but no deferment period.