When you enter a standard loan into your LivePlan forecast, the software will automatically begin applying interest the month after the receipt of the loan. If you're taking on a loan where you won't accrue interest right away (also known as "deferred interest"), here's how to represent that in your forecast.
Note: representing a deferred interest loan will require two separate financing entries:
- One for the interest-free portion of the loan
- One for the portion of the loan with interest
In the example below, we'll enter a 36-month, $10,000 loan with interest deferred for the first six months. In the first six months, we'll make payments of $500.00 per month. After that, the loan will have 12% interest and our payments will drop to the amount calculated by LivePlan.
Entering a deferred interest loan
Entry #1: Interest-deferred portion
- In the Forecast tab, click More. Then click Financing:
- In the Financing page, click the Add Other button:
- Give this segment of the loan a name.
- Enter a zero for the interest rate on this segment.
- Then, click the button to indicate whether you will pay the loan back within 12 months or not. Click Next to continue:
Note: a loan you'll pay back within 12 months is considered short-term debt in your financial statements. A loan you'll pay back in more than 12 months is considered long-term debt. Read What is the difference between short-term and long-term debt?
- The next overlay represents when you will receive the money. Enter the full value of the loan in the month you'll receive it. Click Next to continue:
- The final overlay represents your payment schedule. Enter the interest-free payments you'll be making in the months in which you'll make them. Then, in the month following the last interest-free payment, enter the balance of the loan to be paid. (This may seem strange, but we'll represent this balance again in the second loan entry.)
- Click Save & Close.
Entry #2: Portion with interest
- In the Financing page, click the Add Loan button:
- Give this segment of the loan a name.
- Assign a start date for this portion of the loan. It should be month in which the loan begins to have interest applied -- which is usually the month after the last interest-deferred payment.
- Assign the interest percentage, and the remaining months of the loan. Remember, in this 36-month loan, we've already accounted for the first 6 months in the previous entry. So this entry will encompass the remaining 30 months:
- Click Save & Close.
In the Profit & Loss table below, you can see how there are no interest charges applied until after the first six months.
