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How To Calculate a Loan Payment in Excel

Microsoft Excel is an excellent tool for formatting and organizing data in a spreadsheet. You may use Excel at work, but why not at home? You can use Excel to calculate a loan payment quickly! Learn how to use a spreadsheet software program to simplify your finances.  

How To Use Excel To Calculate Monthly Payments

To stay on top of your monthly payments, you can use formulas in Excel to calculate how much time repayment will take. Knowing how much you will end up paying to borrow money can help you make well-informed financial decisions. Below are some Excel formulas to help you learn how to calculate monthly payments for various loans. But first, it’s essential to go over a few functions:

  • PMT — Calculates loan payments based on fixed payments and interest rates. 
  • NPER — Calculates the number of payment periods for investments based on constant payments and a constant interest rate. 
  • PV — Short for present value. PV represents the total amount of future payments.
  • FV — Short for future value; representing future investments based on fixed payments and interest rates. 

If you need help building an Excel formula, know that Microsoft offers a formula builder online. The Excel Formula Coach allows you to create formulas using the PMT function. All you have to do is input your interest rate, loan length, and loan amount. Once you have your formula, you can plug it into your Excel spreadsheet. 

Excel Formula for Monthly Payment on Credit Card

Credit cards are more challenging to pay off than other types of loans due to high-interest rates and no set repayment plan. The most significant benefit of a credit card is also the main con: monthly payments. 

Credit card companies allow borrowers to make minimum payments each month. The price range for a minimum amount on a credit card typically ranges from $20 to $40. But only paying the minimum can end up costing you a lot in interest fees. To better understand how many minimum payments you must make to pay off credit card debt, you need to know your current balance and the annual interest rate. 

Use the formula PMT (rate, NPER, PV).   

Suppose your credit card balance is $4,500, and your annual interest rate is 20%. Assuming you will not use your credit card while you make regular payments for five years, your calculation will look like this: PMT(20%/12,5*12,4500). The result is a $158.96 monthly payment. 

This Excel formula shows that when you pay $158.96 each month, you will be debt-free in five years! If you want to pay off your credit card debt sooner, you can easily change the formula to see your monthly payment amount.   

Excel Formula for Monthly Payments on Mortgage

If you’re interested in buying a home, it’s essential to understand how much your monthly loan payments will be. Knowing how much your monthly mortgage payment may end up being can help you decide how much house to buy. To calculate monthly mortgage payments, you need to know the house’s purchase price, interest rate, and repayment length.

Use the formula PMT (rate, NPER, PV).   

Suppose you found the perfect house on Zillow listed for $250,000. You may wonder if you can afford that much money on the house. The average interest rate for a 30-year fixed mortgage loan is 6.856%. When you input your information using the Excel formula, your equation should look like this: PMT(6.856%/12,30*12,250000). The answer is a $1,639.15 monthly mortgage payment. If that amount is affordable for you, then you know you can comfortably spend $250,000 or even more on your dream home!  

Excel Formula for Monthly Payment on Installment Loan

There may come a time in your life when you need immediate financial relief. Perhaps you need to pay for car repairs, or you unexpectedly lost your job and can’t pay bills. An installment loan is a great financing option that provides a lump sum in as little as one business day. But can you afford loan repayments? 

Using an Excel formula, you can determine how long it will take to pay off loans for bad credit online. Want to calculate the number of payments you must make in total? You need to know the principal balance of the loan, the annual interest rate, and the monthly payment amount. 

Use the formula NPER (rate, PMT, PV)

Suppose you take out a $2,000 personal loan to help pay for repairs on your vehicle. The annual interest rate you acquired is 25%, and your monthly loan amount is $120. Once you add your data to the Excel formula, your calculation should look like NPER(25%/12,-120,2000). 

When you use the formula to calculate loan payments, the answer comes to 20.68. This answer means you would have to make approximately 20 monthly loan payments to pay off the installment loan. Your last payment will be 1.7 years from now. 

Why Should I Calculate My Monthly Loan Payments?

Calculating loan payments is crucial, so you know the exact number of payments you need to make and how much monthly payments are to create financial goals. 

If you have a lot of credit card debt, you may want to plan out your payments to know exactly when you will be debt-free. Credit card debt is burdensome for many borrowers to pay off because there is no set repayment schedule—you keep making payments. 

Suppose you always pay the $35 minimum amount on your credit card, which has a balance of $1,500 and a 17% annual interest rate. When you use an Excel formula, you learn it will take approximately 67 months to pay off your credit card with minimum payments. That’s roughly 5.5 years! Knowing this information may motivate you to pay higher monthly payments to be free of credit card debt sooner. 

If you can commit to paying $200 monthly on your credit card account and make no further transactions, your loan payment schedule gets reduced to eight months! By paying more, you can have a completely paid-off credit card in under a year. A low credit card balance can significantly improve your credit score. High credit scores can help you secure better loan terms that save you more money. 

How To Reduce Interest Fees on a Loan

Now that you know how to calculate a loan payment in Excel, you may want to know how to reduce your interest fees. Borrowing money is costly, but you can pay fewer interest fees by aggressively paying down your debt. Below are some financial tips on how to pay off your debt fast. 

However, ensure that the financial institution you work with allows extra payments. Some lenders charge prepayment penalties to borrowers that pay off their loans sooner than agreed upon. If your lender does not allow early repayment, but you repay the loan before the due date, you can end up paying a hefty fine. 

Make More Monthly Payments

Making more than one monthly payment can help you quickly pay down your debt. Your monthly payments are based on a schedule. However, you can speed up the repayment schedule by making more than one payment every month. If you have extra money to spend once all your bills are taken care of, you can use it toward your unpaid loan balance. If you make additional payments on your credit card, you can start to lower your credit utilization ratio quickly. 

Make Larger Monthly Payments

If you prefer to make only one payment each month, consider increasing the amount you pay! Paying more than your lender requires can help you speed up the final payment date on your loans. While paying more than you have to is a pain, consider how much you will save on interest fees. Having less pocket money now can help you save more in the long run. 

Pay High-Interest Loans First

Suppose you have multiple loans to pay. Focus on the one that has the highest interest rate. Higher interest rates will make it harder for you to pay off the principal balance due to sky-high interest fees. To help you pay down your high-interest loan, make larger payments and then pay the minimum for all other loans. 

Consolidate Your Debt

Consolidating your debt can reduce the number of payments you make and the interest fees you pay. Debt consolidation can potentially help you obtain a lower interest rate. Lower rates can save you money. If you have difficulty keeping track of all your due dates, know that debt consolidation can make it harder for you to miss a payment. Instead of paying multiple monthly bills, you can pay one when you consolidate. 

The Bottom Line

If you have access to a spreadsheet software program, use it! Excel can help you calculate a loan payment to make clear financial goals and establish a budget plan to get out of debt quickly. There are various Excel formulas based on your loan type and economic background. Once you know what to do to pay off your loan quickly, you can start focusing on how to spend that extra money! 

References:
Using Excel formulas to figure out payments and savings