When you enter a standard loan into your LivePlan forecast, the software will automatically begin applying interest the month after you receive 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 Financing:
- In the Financing page, click the Add Other button:
- Give this segment of the loan a name, then click Terms:
- 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 or Funding 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. For more details, see 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.
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