How the payments work
On an interest-only loan you pay the interest each month and none of the principal until the end, when you pay the whole balance in one balloon payment. The interest is the same every month because the balance does not change.
For $10,000 at 6.49% over 12 months with no fee, the monthly interest payment is $54.08 and total interest is $649.00. The final payment is $10,054.08, which includes the $10,000 principal. The APR equals the rate, 6.49%, because there are no fees.
Origination fees and the APR
A fee of 2% on $50,000 is $1,000 in points. Taken from the loan, you receive $49,000 but pay interest on $50,000. At 10.2% a year for 12 months the monthly payment is $425.00, the total cost of borrowing is $6,100.00 and the APR is 12.34%. The APR is the monthly rate times 12, the nominal method of Regulation Z, and counts the fee as part of the cost.
Added fees and an exit fee
If the fee is added to the loan you borrow it too. A $30,000 loan at 12% for 24 months with a 3% fee added and a 1% exit fee has a balance of $30,900, a monthly payment of $309.00 and fees of $1,200.00. The final payment is $31,509.00, and the APR is 14.10%.
Compare with installments
On the $50,000 example, equal monthly installments at the same rate would be $4,400.45 a month and cost $2,805.36 in interest, against $5,100.00 on interest-only. Interest-only keeps payments low but leaves the full balance due, so plan how to pay or refinance it.
For payday-style fees, use the US short-term loan interest calculator.
For UK pricing, see the UK short-term interest-only loan calculator.
Inputs for the US short-term interest-only loan calculator
Fee is
Taken from the loan means you receive less. Added means the fee is borrowed and earns interest.
Loan amount
The amount you borrow and repay in full with the last payment.
Yearly interest rate
The yearly rate on your offer, charged monthly at one twelfth of it.
Loan term
The number of monthly interest payments, from 1 to 60.
Origination fee (points)
Percent of the loan, charged when the loan starts. Enter 0 for none.
Exit fee
Percent of the loan, paid with the last payment. Enter 0 for none.
CALCULATOR QUESTIONS
US short-term interest-only loan calculator questions
How do you calculate interest-only payments?
Multiply the balance by the yearly rate and divide by 12. $10,000 at 6.49% is $54.08 a month.
What is the balloon payment on an interest-only loan?
The whole principal, paid with the last interest payment. In the $10,000 example the final payment is $10,054.08.
How do points affect the APR?
They are a cost of the loan, so the APR rises. A 2% fee taken from a $50,000 loan at 10.2% gives an APR of 12.34%.
Is interest-only cheaper than paying monthly installments?
Payments are lower but total interest is higher: $5,100.00 against $2,805.36 on the $50,000 example.