How this calculator works
A deferred payment loan lets the borrower pause payments for an agreed period, often while studying, training or starting a business. Interest usually still accrues during that time, and what happens to it determines the cost. If it is capitalized it is added to the principal, so repayment is charged on a larger balance. If it is paid monthly during the deferment, the principal stays the same but the borrower still has an obligation each month. In both cases the repayment term then clears the balance with level payments. Repayment can be monthly, bi-weekly or weekly; the monthly rate is converted to an equivalent periodic rate so the quoted annual rate keeps the same monthly compounding. This model uses a fixed rate and does not include fees, subsidies or a grace period after the deferment.
Formula
i = annual rate / 12. Interest during deferment = P × ((1 + i)^d - 1) where d is the number of deferment months. Capitalized balance = P + that interest; otherwise the balance stays at P and the monthly deferment payment is P × i. For f payments per year, j = (1 + i)^(12/f) - 1 and n = f × the repayment term in years. Repayment payment A = balance × j / (1 - (1 + j)^(-n)). At monthly frequency j = i and n is the term in months.
Worked example
A $20,000 loan at 7% deferred for 12 months then repaid over 48 months accrues $1,445.80 of interest during the deferment. If that interest is capitalized, the balance is $21,445.80 and the monthly repayment payment is $513.55, for total interest of $3,204.43. If it is paid monthly instead, the deferment costs $116.67 a month, the balance stays at $20,000, the monthly repayment payment is $478.92 and total interest is $4,434.20. The same capitalized loan repaid bi-weekly over 48 months makes 104 payments of $236.65, for total interest of $3,165.83.
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Frequently asked questions
Does interest accrue during a deferment?
Usually yes unless the loan is subsidized. Check the agreement, because an unsubsidized deferment can add a noticeable amount to the balance before repayment even begins.
Can I repay bi-weekly or weekly?
Yes. Choose the frequency. The repayment term must contain a whole number of payments at that frequency, so 48 months fits 104 bi-weekly or 208 weekly payments. Interest is still modelled as monthly compounding.
Is capitalizing interest worse than paying it?
Over the same term it costs the same in interest, but capitalizing avoids cash outlay during the deferment and shifts the burden into repayment. Paying it monthly keeps the balance lower and reduces the later payment.
What about a grace period?
A grace period is usually a short window after the deferment or after leaving school before repayment starts. This model treats the deferment as the whole interest-accruing period and does not add a separate grace period.
Can I repay during the deferment?
Often yes, and any payment reduces the capitalized balance. This calculator assumes no payments are made during the deferment other than the interest when that option is chosen.