3 Ways to Calculate an Installment Loan Payment - Baltimore Post-ExaminerBaltimore Post-Examiner

3 Ways to Calculate an Installment Loan Payment

An installment loan, such as a mortgage, is a type of loan repaid over time with a set number – at least two – of payments that are scheduled, which also include interest charges and finance fees.

The Equal Monthly Installment (EMI) method is used to calculate such payments. It is quite easy to do and can be made via online calculators, spreadsheet software like Excel or simply by hand.

Let’s now see in action the 3 ways to calculate an installment loan payment.

1. Use of an Online Calculator

Finding an auto payment calculator is quite easy. All you have to do is access the link found in the previous sentence and proceed as follows.

Firstly, you should locate the information that you require to calculate your installment loan payment. Such information is related to interest rate, loan amount and number of payments. Then you have to fill in the information and ultimately, see the results of your calculation. You can also adjust some of the information to see how different data impacts your result and therefore plan your payment accordingly.

2. Use of Excel

Naturally, the first step when using this method is to launch the Excel software. Then, you have to write down your loan information, such as the total amount financed, the number of payments and the interest rate.

After choosing the cell you want your result to be displayed on, you will have to use the PMT formula to proceed with the calculation. To do so, you will have to click the fx button in Excel and search for the PMT function.  In the use of this function, data can also be entered manually, but using the dialog box aided entry is much faster if you are fairly new to Excel.

As the popup box opens, you can begin entering your information in the proper fields. TheRatefield is the monthly interest rate changed and it is listed as APR in loan documentation. Nper is the number of the loan’s periods; Pv is the present value of the loan, Fv is the future value of the loan, after five years and is typically filled in with 0 if you are paying off the full value. The Type field will be usually left empty, unless you want the calculation to display the result depending on when you make the payment, at the beginning or at the end of the period.

3. Calculate your Installment Loan Payment by hand

First of all, as with every previous method, you have to find your loan information. Then, you have to apply the equation needed to calculate your payment, which is Monthly Payment = P (r(1+r)^n)/((1+r)^n-1). Here, r is the interest rate, n is the number of payments, P is the amount of the loan, also called principal.

After finding the information you need and writing down the formula, you will have to replace the letters of the formula with the information.  Then, all you have to do is to solve, understand the calculation and reach your final result, which is your installment loan payment.

All of these will always work if you are interested in calculating your installment loan payment, but you should always double check your result. Using an auto payment calculator will assure you that the calculation done by hand or via Excel is correct and that you have reached a correct result.


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