How to Use an Excel Formula to Calculate Loan EMI?

When it comes to taking a loan, it’s essential to understand the repayment structure and how much it will cost you. One of the most critical components of a loan is the EMI or equated monthly instalment. EMI refers to the fixed amount of money you must pay monthly to repay the loan. It consists of both principal and interest components. Using an Excel formula to calculate EMI can help you understand the amount you need to pay and make better financial decisions. This article will explain how to use an EMI Calculator in Excel.

The formula to calculate loan EMI in Excel is PMT. PMT stands for Payment and calculates the periodic Payment for a loan with a fixed interest rate, term, and loan amount. To use the PMT function, you must provide three inputs - interest rate, loan amount, and loan tenure.

Here are the steps to use the PMT function to calculate loan EMI in Excel:

• Step 1: Open Excel and create a new spreadsheet.

• Step 2: In cell A1, enter the loan amount.

• Step 3: In cell A2, enter the interest rate per annum. Divide the annual rate by 12 to get the monthly interest rate.

• Step 4: In cell A3, enter the loan tenure in months.

• Step 5: In cell A4, enter the following formula: =PMT(A2/12, A3, -A1)

• The PMT function takes three arguments: the interest rate per period, the number of periods, and the loan amount. In this case, the interest rate per period is A2/12, the number of periods is A3, and the loan amount is -A1 (negative because it represents an outgoing payment).

• Step 6: Press Enter to get the monthly EMI in cell A4.

• You can use this formula for any type of loan, such as a home, personal, or car loan. Enter the relevant values for the loan amount, interest rate, and loan tenure, and the PMT function will calculate the EMI for you.

It’s important to note that the EMI calculated using the PMT function is based on a fixed interest rate and loan tenure. In reality, interest rates may vary, and the loan tenure may change due to prepayments or delays in repayment. Therefore, it’s always a good idea to use the EMI calculator as a starting point and adjust it based on changes in interest rates or loan tenure.

Using an Excel formula to calculate loan EMI can help you understand how much you must pay every month to repay the loan. Take care of the processing fee for personal loans. The PMT function is a simple and effective way to calculate EMI for any loan. Enter the loan amount, interest rate, and loan tenure, and the function will calculate your monthly EMI. Adjust the EMI based on changes in interest rates or loan tenure to ensure you make the right financial decisions regarding loan amortization.