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Excel Calculate a Loan Payment

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Calculate a Loan Payment

Problem: I am considering buying a car. I want to calculate the loan payment.

LE10000308.jpg 

Figure 329 Set up the price, term, and interest rate..

Strategy: To calculate your car loan payment, you can use the PMT function. Follow these steps:

1. Enter price, term in months, and annual percentage rate in cells A1:B3. The PMT function has three required arguments: the interest rate, the number of payments in the loan, and the original loan amount.

Gotcha: The interest rate must be entered as a percentage. If you are planning on monthly payments (which is normal), you have to divide the annual percentage rate by 12.

Gotcha: In financial terms, the bank is loaning you $25,995—a positive amount coming to you. Thus, the payments that you make to the bank are really a negative amount—money leaving your wallet. For this reason, the result of the PMT function will be negative. However, you can precede the third argument of the PMT function with a minus sign in order to return a positive payment amount.

2. Enter the formula =PMT(B3/12,B2,-B1) in cell B5.

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Figure 330 The PMT function calculates the monthly payment.

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