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How to Calculate Payment For a Loan in Excel

While taking a loan from a bank or a financial institution, our primary concern is how much we have to make periodic payment (monthly, quarterly, annually) to pay back that loan on a given interest rate and in the total number of payments. Using the Excel PMT function we calculate payment for a loan based on a constant interest rate and constant payments.

Figure 1. Calculating Payment For a Loan in Excel

Formula Syntax

The syntax for the formula to calculate payment for a loan in Excel is;

=PMT(annual rate/compounding periods, total payments, loan amount)

OR

=PMT(rate, nper, pv, [fv], [type])

Where,

  • Rate (required argument): A constant interest rate
  • Nper (required argument): The Total number of payments or periods
  • PV (required argument): Present value or the loan amount

There are two optional arguments;

  • FV (optional argument): Future value of loan amount after all payments are made. Use $0 if not known or omit this argument.
  • Type (optional argument): To specify whether the payment is due at the beginning or end of the period, like at the beginning or end of the month. Use “1” for the beginning of the period and “0” for the end of the period. The default is “0

Figure 2. The Syntax of the Formula

Example

Assume we need to borrow $30,000 at 8% annual interest rate for 5 years on monthly payment terms. We can calculate the monthly payment for this loan amount using the following formula assuming the monthly payment is due at the end of the month;

=PMT(C3/C5,C4,C2)

Figure 3. Using the PMT Function to Calculate Payment For a Loan

As the constant interest rate is annual, so we have to convert it into monthly interest rate by dividing it to 12 (compounding periods per year). The loan period is 5 years and payments for the loan are monthly, therefore the total number of payments would be 60 (12*5). The PMT function returns payment for the loan as a negative value to represent the cash outflow, such as;

Figure 4. Final Preview of Formula to Calculate Payment For a Loan

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Another blog reader asked this question today on Excelchat:
Here are some problems that our users have asked and received explanations on

Calculate the payment amount for the loan in cell C15. Reference the cells containing the appropriate loan information as the arguments for the function you use. Cells C20C67 in the "Payment" column are populated with the payment amount from cell C15. [34 points]
Solved by M. W. in 28 mins
Using cell references, create a PMT formula in cell D8 to calculate the monthly loan from NewVentures CapitalInc. Bote: the PMT function uses the same arguments as the PPMT function with the exception that there is no PER criterion. Remeber to divide the rate by 12 and multiply the NPER by 12 to use the monthly units. Using cell refrences create PPMT formulas to find theprincipal portion of the loan payment for the first loan payment in cell D10 and the last loan payment in cell D11. In cell D13, create a formula to calculate the total cost of the loan by multiplying the monthly loan payment times the authorization period in years times 12.
Solved by D. J. in 13 mins
Need help creating a formula in C10 and E10 to calculate the monthly loan payment from each lender
Solved by C. W. in 12 mins

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