As the name states, with an interest only loan, the periodic payment amount pays only the interest due for the period. This results in smaller periodic payments until the final payment is due The final payment will include the entire principal amount. When a consumer selects an interest only loan, they are not paying down the loan's balance.
Note: Bonds represent debt, that is a loan to the bond's issuer. Frequently bonds pay only coupon interest and thus they are interest only loans.
This calculator will solve for any one of four possible unknowns: "Amount of Loan", "Total Scheduled Periods" (term), "Annual Interest Rate" or the "Periodic Payment".
Enter a '0' (zero) for one unknown value.
The term (duration) of the loan is a function of the "Total Scheduled Periods" and the "Payment Frequency". If the loan is calling for monthly payments and the term is four years, then enter 48 for the "Total Scheduled Periods". If the payments are made quarterly and the term is ten years, then enter 40 for the "Total Scheduled Periods".
Normally you would set the "Payment Method" to "Arrears" for a loan. This means that the monies are lent on one day and the first payment isn't due until one period after the funds are received.
If the first payment is due on the day the funds are available, then set "Payment Method" to "Advance". This is typical for leases.