How this instrument works
A deferred payment loan lets the borrower skip payments for a stated window at the start — often marketed as "no payments for six months" on furniture, electronics, or medical financing, or built in as the grace period on federal student loans — but skipping the payment does not skip the interest. Unless a loan is explicitly subsidized, interest keeps accruing every month of the deferment, and because nothing is paid toward it, that unpaid interest capitalizes: it gets folded into the balance, so next month's interest is charged on a slightly larger number. The balance the borrower eventually starts repaying is already bigger than what they originally borrowed.
The math runs in two distinct phases, and the two formulas above describe what actually happens to the money rather than being an arbitrary split. During deferment the balance simply compounds — no term, no monthly payment, just the loan amount raised by the monthly rate for however many months are deferred — because a lender collecting nothing is, mechanically, running a compound-interest calculation, not an amortization schedule. Only once deferment ends does the standard amortizing-payment formula switch on, and it sizes the payment against that grown balance, not the original loan amount, over whatever months remain.
This is a deferred-payment structure, not a deferred-interest one, and the difference matters more than the similar names suggest. A deferred-interest retail promotion typically waives interest entirely if the balance is paid off by a set date, then bills every day of accrued interest retroactively, in full, the moment that date is missed. This sheet assumes interest accrues steadily and predictably throughout the deferment window and simply rolls into the balance — the milder structure common to federal loans and most installment financing, not the harsher all-or-nothing terms printed in some store-card fine print.
- Enter what you are borrowing under Loan amount, $.
- Set the rate your lender quotes under Annual interest rate, %.
- Enter how long payments are on hold under Months deferred (interest accrues, no payments) — the promotional or grace window.
- Enter the schedule the grown balance repays over under Months to repay after deferment.
- Read Balance when repayment starts and Monthly payment during repayment.
Worked example — $10,000 deferred six months
Borrow $10,000 at 8% annual interest with Months deferred (interest accrues, no payments) set to 6 — a typical furniture-financing or private-student-loan grace period. The monthly rate is 0.6667% (8 divided by 100 divided by 12), and applying it six times running, $10,000 times 1.006667 to the sixth power, grows the balance to $10,406.73 before a single payment has been made — that is Balance when repayment starts.
Set Months to repay after deferment to 24 and the amortization formula takes over, spreading that $10,406.73 — not the original $10,000 — across 24 monthly installments at the same 0.6667% rate. Monthly payment during repayment comes out to $470.67, meaning the six-month pause already added $406.73 in capitalized interest before the repayment clock even started, a cost that "no payments due" promotions rarely state in dollars.
Questions
Does interest really keep growing while payments are deferred?
Yes, unless the loan is explicitly subsidized. Every month of deferment applies that month's rate to the current balance and folds the result back in, so Months deferred (interest accrues, no payments) directly inflates Balance when repayment starts — on the $10,000 example at 8% over six months, that adds $406.73 before repayment begins.
Why is my monthly payment higher than a loan with no deferment?
Because the amortization formula is applied to the grown balance, not the original loan amount. A $10,000 loan repaid over 24 months with zero deferment costs $452.27 a month; the same loan deferred six months first costs $470.67 a month, since the payment is sized against $10,406.73 instead of $10,000.
How is this different from a balloon loan?
A balloon loan collects a monthly payment the entire time and leaves one lump sum due at maturity. A deferred payment loan runs the opposite way — nothing is collected during the deferment window, then the whole grown balance is amortized into equal payments afterward. One structure back-loads a single large payment; the other front-loads balance growth nobody is paying down yet.
Is this the same as a deferred-interest credit card promotion?
No. A deferred-interest retail promotion usually waives interest if the balance is paid in full by a set date but charges all of it retroactively the moment that date is missed. This calculator models the steadier deferred-payment structure instead — interest accrues and capitalizes predictably each month — the pattern behind federal student loans and most installment financing, not that harsher store-card term.
What happens if Months deferred is set to zero?
The balance formula returns the original loan amount unchanged, and the payment formula becomes an ordinary amortized loan payment — the deferment phase simply drops out. On the $10,000, 8%, 24-month example that means a $452.27 monthly payment instead of $470.67, the difference deferment alone adds.
Does a longer deferment always mean a much larger balance?
It compounds, so growth accelerates the longer deferment runs, but at typical consumer rates the effect is gradual over a few months rather than dramatic. Deferring the $10,000, 8% example for twelve months instead of six roughly doubles the added balance, from about $406.73 to about $830.00 — proportional to time, not runaway, at ordinary rates.
References
- Consumer Financial Protection Bureau — Student loans
- Federal Reserve — Consumer credit (G.19) statistical release
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.