Excel Loan Calculator

by
David Chen, CFA
Financial Analysis Expert | Senior Financial Planner

Master your finances with our professional excel loan calculator. Whether you’re planning a mortgage, auto loan, or personal credit, this tool replicates Excel’s PMT functionality to help you solve for payments, loan amounts, or interest rates instantly.

Excel Loan Calculator

Total principal of the loan.
Annual rate (e.g., enter 5 for 5%).
Duration of the loan in years.
Expected monthly installment.
Calculation Result
$0.00

Excel Loan Calculator Formula:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]

This is the standard amortization formula used by the Excel PMT function.
Formula Source: Investopedia | Microsoft Support

Variables:

  • M (Monthly Payment): The amount paid every month toward the loan.
  • P (Principal): The total amount of money borrowed.
  • i (Monthly Interest): The annual interest rate divided by 12 (and divided by 100 for decimals).
  • n (Number of Payments): The total number of months (Years × 12).

What is an Excel Loan Calculator?

An Excel loan calculator is a financial tool designed to estimate the cost of borrowing by simulating how payments are structured over time. It typically utilizes the “Amortization” method, where each payment covers both the interest accrued and a portion of the principal balance.

Financial experts prefer using Excel-based logic because it allows for “What-If” analysis. By adjusting the interest rate or the loan term, users can immediately see how much they can save on total interest over the life of the loan.

How to Calculate Loan Payment (Example):

  1. Identify Inputs: Loan = $10,000, Rate = 6%, Term = 2 years.
  2. Convert Rate: Monthly i = 0.06 / 12 = 0.005.
  3. Total Months: n = 2 * 12 = 24.
  4. Apply Formula: M = 10,000 [ 0.005(1.005)^24 ] / [ (1.005)^24 – 1 ].
  5. Final Result: Monthly Payment is approx $443.21.

Frequently Asked Questions (FAQ):

What is the difference between simple interest and amortization?

Simple interest is calculated only on the principal, while amortization involves paying interest on the declining balance, which is how most bank loans work.

Why is my monthly payment higher than expected?

Check if you included taxes, insurance, or private mortgage insurance (PMI), which are often added to basic principal and interest payments.

Can I solve for the Interest Rate?

Yes, but solving for the rate requires an iterative process (like Excel’s RATE function) because the variable is part of an exponent and a base.

How does a shorter term affect the loan?

A shorter term increases your monthly payment but significantly reduces the total interest you pay over the life of the loan.

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