Q&A for How to Calculate an Installment Loan Payment

Using Excel, click on any cell, click on fx then click on the PMT function. A dialog box will open. Put 5%/12 in the Rate section, put 12 in the Nper section, and -2455 in the PV section. The other sections can be left blank. The answer will be rounded to $210.17 per month.

The monthly payments can be calculated using the Excel spreadsheet PMT formula. You can use the = sign in a cell with PMT(interest rate, number of payments, amount of the loan due). For this it will be =PMT(0.0042, 12, 2455,0). The 0.0042 is calculated from the interest of 5% divided by 12 months, divided by 100 to turn it into a decimal and then it is rounded to 42% or .0042. 12 are the number of payments, 2455 is the debt, and 0 is the future value when it is paid off. That is one way to calculate. The article outlines other methods as well.

You have to know what the interest rate is, how long the loan term is for, and the amount being borrowed. Make sure to use the monthly interest rate when calculating. Using the formula above, put in the amount being borrowed in the P variable, the monthly interest rate in the r variable, and the amount of total months the loan will be amortized for in the n variable. Work the innermost sections within the parentheses first. You can also plug these numbers into an online calculator to verify your math, or use an Excel spreadsheet, input a function (fx), select PMT, in the dialog box that comes up, plug in the interest rate, number of total months that the loan will need payments, and the total loan amount before interest to calculate the monthly payment.

The simplest way is to use an Excel spreadsheet. In any cell put =PMT(yearly rate/12, nper, PV), nper is the number of payments for the loan and PV is the amount borrowed, the principle.

With credit cards, the monthly interest rate is charged based on the average daily balance so if you pay your monthly payment sooner but it is not paid in full, the average daily balance will be lower the following month. If a loan is amortized over a period of time on an installment plan, the rates are fixed each month so it may only make a difference in the interest paid if you pay off the loan early. The early payoff will eliminate future interest charges that would have been incurred on the unpaid balance.