How to Calculate Total Interest Paid on a Loan in Excel

This guide provides a step-by-step process for calculating the total interest paid on a loan in Microsoft Excel. By following these simple steps, you can easily calculate your own loan interest payments.

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Introduction

Assuming that you have a loan with a principal amount of $100,000, an annual interest rate of 5%, and a loan term of 30 years, you can use the following steps to calculate the total interest paid on the loan:

1. Enter the loan information into an Excel spreadsheet.

In cell A1, enter “Loan Information.”

In cell A2, enter “Principal.”

In cell A3, enter “Interest Rate.”

In cell A4, enter “Term.”

In cell B2, enter 100000 (100000 for $100,000).

In cell B3, enter 0.05 (0.05 for 5%). In this case you do not need to multiply by 100 since the percentage is already given as a decimal. If your interest rate was given as 5%, then you would need to multiply by 100 in order to convert it to a decimal (0.05 = 5%). However, if it is given as 5 percentage points, then you would not need to multiply by 100 (5 percentage points = 0.05). In general, it is safest to assume that if no units are given (e.g., %), then multiply by 100. So if in doubt, go ahead and multiply by 100.

In cell B4, enter 30 (30 for 30 years).

2. Calculate the monthly interest rate.

In Excel, the formula for monthly interest rate is =(annual interest rate/12)/100

In our example: =(0.05/12)/100

Enter this formula in cell C3 and press Enter on your keyboard

The monthly interest rate should appear in cell C3

3. Calculate the total number of payments (months)

The total number of payments is equal to the number of years multiplied by 12

In our example: 30*12=360

Enter this formula in cell C4 and press Enter on your keyboard

The total number of payments should appear in cell C4

4. Calculate the monthly payment amount

The monthly payment amount is equal to the principal divided by ((1-(1+r)^(-n))/r) where r is the monthlyinterest rate and n is the number of months

In our example: =B2/((1-(1+C3)^-C4)/C3) Note that when typing a negative exponent in Excel you must use ^ instead of (-)

Enter this formula in cell D2 and press Enter on your keyboard

The monthly payment should appear in D2

The Basics of Interest

Interest is the amount of money charged by a lender to a borrower for the use of money, calculated as a percentage of the principal loan amount. When you borrow money, you not only have to pay back the principal amount of the loan, but you also have to pay interest. The total amount of interest you will pay depends on the interest rate, the principal loan amount, and the length of time you borrow the money. You can use Excel to calculate the total interest you will pay on a loan.

Simple Interest

Simple interest is the amount of interest that accrues on a loan or other financial product that is not compounded over time. This type of interest is typically calculated as a percentage of the principal balance and is usually paid at the end of the loan term. For example, if you take out a loan for $10,000 at an annual percentage rate (APR) of 5%, you will owe $500 in interest at the end of the year.

To calculate simple interest in Excel, you can use the “PRICE” function. This function takes three input values:

-The rate of interest (in decimal form). In our example, this would be 0.05 for 5%.
-The number of periods. For loans, this is typically 1 for each year in the loan term.
-The amount of the loan. In our example, this would be 10000.

The PRICE function will return the total amount owed at the end of the loan term, including both principal and interest. To calculate just the interest paid, you can subtract the original loan amount from this result.

Compound Interest

Compound interest is calculated on the initial principal amount and also on the accumulated interest of previous periods, and it can be expressed in either monthly or annual terms. The following example shows how to calculate compound interest monthly in Excel.

Suppose you have a loan of $100,000 at an annual interest rate of 5% for 10 years, compounded monthly. In Excel, you can use the FV function to calculate the future value of this loan after 10 years. The formula would be as follows:

=FV(5%/12,10*12,-100000)

The FV function returns a future value where:
-rate = 5%/12 (annual interest rate divided by number of compoundings per year)
-nper = 10*12 (number of periods – in this case, 10 years multiplied by 12 to get number of months)
-pmt = 0 (payment – since we’re only concerned with future value in this case)
-pv = -100000 (principal amount)

The result is $167,071.78 – meaning that you would owe $67,071.78 in interest if you took out this loan and paid it back over 10 years.

How to Calculate Interest in Excel

You can calculate the total interest paid on a loan in Excel by using the “PMT” function. This function will calculate the periodic payment for a loan based on an interest rate and the number of payments. To use this function, you will need to know the interest rate, the number of payments, and the loan amount.

The PMT Function

The PMT function is used to calculate the periodic payment for a loan. To use the PMT function, enter the interest rate, number of periods and present value. The formula for the PMT function is:

=PMT(interest rate, number of periods, present value)

For example, to calculate the periodic payment on a loan with an interest rate of 5%, a term of 60 months and a present value of $20,000, you would use the following formula:

=PMT(5%,60,20000)

which would return a payment amount of $377.42.

The PPMT Function

The PPMT function returns the principal payment for a given period for an investment based on periodic, constant payments and a constant interest rate.

In Excel, the PPMT function is used to calculate the principal payment for a given period for an investment based on periodic, constant payments and a constant interest rate. The PPMT function syntax has the following arguments:

rate Required. The interest rate per period. For example, if you get a loan at an annual interest rate of 10 percent and make monthly payments, the monthly interest rate would be 0.1/12, or 0.0083.
period Required. The period for which you want to calculate the principal payment. For example, if you make monthly payments on your loan and it’s the fifth month of the loan, the period would be 5.
nper Required. The total number of payment periods in an annuity. For example, if you make monthly payments on your loan for three years, then nper is 36 (12*3).
pv Required .The present value – or initial balance – of the loan before any periodic payments are made we also call this “the principle”. In our example we’ll use 10000 as our present value or principle because that’s what we owe before making any payments at 10%.

PV=10000
rate=0%/12 (or 0.1/12)
nper=36 (or 3*12)

type=-pmt(A2/A3,-A1,-A4) into cell A5

This formula says that PPMT equals negative PMT withrate/NPER called first-argument,-PV called second argumentand -FV called third-argument

The IPMT Function

The IPMT function is used to calculate the interest payment for a given period for an investment based on periodic constant payments and a constant interest rate. The Interest Rate per period must be entered as a percentage, not as a decimal. The function will return the interest payment as a negative number, so if you want to see the total amount paid in interest over the life of the loan, you can use the SUM function to add up all the payments.

To use the IPMT function, enter the following into a cell:
=IPMT(interest_rate, per, nper, pv)
Replace “interest_rate” with the annual interest rate for the loan divided by 12 (the number of months in a year). Replace “per” with the period for which you want to calculate the interest payment. “Nper” is the total number of payments for the loan, and “pv” is the present value of the loan (the amount you borrowed).

Conclusion

Congratulations! You have now completed your interest calculation.