How to use this calculator
- Enter or choose amount borrowed.
- Enter or choose interest rate.
- Enter or choose months until repayment starts.
- Enter or choose interest before repayment.
- Enter or choose repayment term.
- The monthly payment updates as you type. Use Copy result or Share to keep it.
Method
Interest before repayment = P × r × months ÷ 12; Balance = P (+ that interest if capitalised); Payment = B × i ÷ (1 − (1 + i)^−n), i = r ÷ 12
- P
- amount borrowed
- r
- annual interest rate
- B
- balance when repayment starts
- i
- monthly rate
- n
- number of monthly payments
Worked example
- Interest before repayment = 10,000 × 6% × 6 ÷ 12 = 300.
- Capitalised, the balance becomes 10,300.
- Payment = 10,300 × 0.005 ÷ (1 − 1.005^−120) = 114.35 a month.
Letting six months of interest be capitalised turns a 10,000 loan into 10,300 and a payment of 114.35 a month instead of 111.02.
What the result means
Paying the interest as it accrues keeps your balance at what you borrowed, so you never pay interest on interest. Compare the total paid under “capitalised” and “I pay it” to see what that is worth.
Assumptions and limits
- Interest before repayment is simple interest, added once when repayment starts (how US federal loans capitalise).
- The interest rate is fixed and payments are equal and monthly.
- Income-driven, graduated or income-contingent plans (such as UK Plan 2 or 5) calculate payments from earnings, not this formula.
- Fees, rate discounts and partial-year disbursements are not modelled.
Questions
What does capitalised interest mean?
Unpaid interest is added to the principal, so from then on you pay interest on it too.
Is it worth paying interest while still studying?
If you can, it lowers the balance repayment starts from and the total cost. In this example it saves about 400 over ten years.
Please note: This calculator gives estimates for planning. It is not financial advice, and lenders’ actual terms, fees and rounding may differ.