1. What is Interest Only Calculation?

The Interest Only calculation determines how much interest will be paid on a principal amount over a specific time period at a given interest rate, without considering any principal repayment.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( Principal \) — Initial amount of money
• \( Rate \) — Annual interest rate (in decimal form)
• \( Time \) — Time period in years

Explanation: The formula calculates only the interest portion of a loan or investment, not including any principal payments or compounding effects.

3. Importance of Interest Calculation

Details: Understanding interest-only payments is crucial for loan planning, investment analysis, and financial decision making, especially for short-term loans or interest-only mortgage products.

4. Using the Calculator

Tips: Enter principal in dollars, rate as a decimal (e.g., 0.05 for 5%), and time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest.

Q2: When is interest-only calculation typically used?
A: Commonly used for short-term loans, some mortgages (during interest-only periods), and certain investment products.

Q3: How do I convert APR to decimal?
A: Divide the percentage by 100 (e.g., 5% becomes 0.05).

Q4: Does this work for partial years?
A: Yes, you can enter fractional years (e.g., 0.5 for 6 months).

Q5: Why would someone use interest-only payments?
A: It can lower initial payments, which might be useful for investors or those expecting higher future income.