Loan Amortization Interest-Only Calculator

A loan amortization interest-only calculator estimates the monthly interest payment on a loan when you pay interest but do not reduce the principal. Enter the loan amount and annual interest rate to see the monthly payment and the interest charged over a selected period.

Formula

The calculator applies a simple monthly interest-only formula:

Monthly payment = principal × (annual interest rate ÷ 1,200)

Total interest = monthly payment × number of months

• Principal (p): the amount borrowed, in dollars.
• APR (apr): the annual percentage rate entered as a percentage, such as 8 for 8% per year.
• Monthly rate: APR divided by 1,200, converting a percentage per year to a decimal rate per month.
• Term (yrs): the number of years in the period being estimated; multiplying by 12 gives the number of monthly payments.

The payment covers interest only. It does not include a principal repayment, so the balance remains unchanged in this calculation. The APR is treated as a fixed nominal annual rate divided into monthly periods; the result does not model lender-specific daily accrual or payment conventions.

Worked Example

Using the calculator’s default inputs—$20,000 principal, 8% APR, and 5 years—first convert the APR to a monthly decimal rate:

8 ÷ 1,200 = 0.0066667 per month.

Then calculate the interest-only monthly payment:

$20,000 × 0.0066667 = $133.33 per month, rounded to the nearest cent.

There are 5 × 12 = 60 monthly periods. Using the displayed monthly payment for the total:

$133.33 × 60 = $7,999.80 total interest.

The principal is still $20,000 at the end of this interest-only period if no principal payments or other balance changes occur. The $7,999.80 total reflects the rounded monthly payment multiplied by 60; calculating each period at full precision and rounding only the final total can produce a slightly different figure.

Assumptions

• The interest rate stays fixed throughout the period.
• Payments occur monthly, with interest calculated using the stated APR divided by 12.
• The calculation assumes interest is paid as it accrues and no interest is added to the principal.
• Fees, taxes, insurance, PMI, escrow, late charges, and lender-specific accrual methods are not included.
• The term is the period used to estimate interest; it does not establish that the lender’s interest-only period or full loan term has those exact dates.

What an Interest-Only Payment Means

In an amortizing loan with regular level payments, each payment generally covers interest due and repays some principal. As the balance declines, the interest portion usually declines too, while the principal portion grows. An interest-only payment instead covers the calculated interest while leaving the amount borrowed intact.

For example, at a constant rate and balance, this calculator returns the same monthly interest-only amount each month. That result is not a schedule of principal reduction: paying $133.33 monthly in the example does not reduce the $20,000 balance. To repay the principal, a borrower would need separate principal payments or a later repayment arrangement specified by the loan terms.

Interest-only periods and repayment structures vary by contract. Some loans may later require principal-and-interest payments, a lump-sum payment, or another arrangement. The calculator does not infer those terms. Check the loan documents or ask the lender how and when principal becomes due.

When to Use This Calculator

Use this estimate to understand the monthly interest cost of a fixed balance at a stated APR, or to compare arithmetic scenarios by changing the inputs. It can also help separate interest cost from principal repayment when reviewing a proposed payment structure.

• Enter the principal amount, not the total cost of a purchase unless that is the amount being borrowed.
• Enter APR as a percentage number: type 8 for 8%, not 0.08.
• Set the term to the number of years for which you want to estimate interest-only payments.
• Compare the result with the lender’s payment schedule and disclosures, which may use different timing or include other charges.

The term input determines the total-interest estimate; it does not change the monthly payment in this formula. For instance, holding principal and APR constant while doubling the term leaves monthly interest unchanged but doubles the number of payments and therefore the estimated total interest.

Common Mistakes and Limits

A frequent misunderstanding is treating an interest-only payment as a payment that gradually pays off the loan. This calculator does not amortize principal. A separate amortization calculator is needed to estimate level payments that pay down both interest and principal over a specified repayment term.

Another common error is mixing percentage formats. Since the formula divides APR by 1,200, entering 8 means 8% annually. Entering 0.08 would instead represent 0.08% annually, producing a much smaller result. The monthly conversion also assumes the rate is quoted as an annual percentage divided by 12; a contract that calculates interest daily or uses a variable rate can yield different charges.

Rounding matters over many periods. This page rounds the monthly payment to cents and multiplies that displayed amount by the number of months. Actual lender calculations may retain more precision internally, round by payment, or account for exact dates. The estimate also excludes fees and any charges that are not interest, and it cannot establish the amount due on a particular date.

Frequently Asked Questions

How do I calculate an interest-only loan payment?
Multiply the principal by the monthly rate. For an APR entered as a percentage, monthly rate is APR ÷ 1,200. A $20,000 balance at 8% APR gives about $133.33 per month under the assumptions here.

Does an interest-only payment reduce the loan balance?
No. In this calculation, the payment covers interest only, so the principal stays the same. Any principal reduction must come from additional payments or a different payment structure.

How much total interest will I pay during the interest-only period?
Multiply the monthly interest-only payment by the number of monthly periods. The result assumes the balance and rate remain unchanged and uses the rounded payment shown by the calculator.

Is an interest-only loan the same as an amortizing loan?
No. An amortizing payment includes principal repayment as well as interest, so the balance falls over time when payments are made as scheduled. An interest-only payment, as modeled here, does not pay down principal.

Why might my lender’s payment differ from this estimate?
The lender may use different accrual dates, daily interest calculations, rounding, a changing rate, or additional charges. The actual contract and payment disclosure control the figures that apply to the loan.

This result is an estimate, and the lender’s disclosure gives the exact figures.

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in p | Loan amount | $ | 20000 | 1 | 100000000
in apr | Interest rate (APR) | % | 8 | 0.01 | 100
in yrs | Loan term | years | 5 | 0.0833 | 50
out pmt | Monthly interest-only payment | $ | p * (apr / 1200) | 2
out int | Total interest over term | $ | pmt * yrs * 12 | 2