PMT Function
Pmt function is used for calculating payment of a loan based on constant payments and constant interest rate. In other words, it helps you calculate how much your periodic payments are going to be.
Syntax for PMT Function is
PMT(rate;Nper;PV;FV;Type)
rate – Interest Rate
Nper – Payment Periods
Pmt – Payment
Type – 1 if payment is at the beginning of the period, 0 if payment is at the end of the period
Example1:
John need 20,000$ loan to buy a new car. He plans to pay this loan back in 24 months with equal payments. How much the monthly payments will be? (15% annual interest rate assumed)
Our formulation for PMT Function for this loan is:
PMT=(15%/12;24;20,000$;0;0)=970$
John can pay this loan back in 24 months with 970$ monthly payments.
Example2:
John will take the loan mentioned in Example1 but he also aims to save 10,000$ at the end of this 24 month period. How much does he need to pay each month in that case?
Our formulation for PMT function for this loan is:
PMT=(15%/12;24;20,000$;10,000$;0)=1,330$
John can pay this loan back in 24 months and save an additional 10,000$ at the end with 1,330$ monthly payments.
