The PMT function returns the periodic (in this case monthly) payment for an annuity (in this case a loan). This is the PMT function that was used for the car purchase in the first example. There are a few things that we must know in order for this function to work. To calculate the loan we must know a combination of the following
=PMT(rate, NPER, PV, FV, type)
Note that the rate is per period. If we have an annual interest rate of 9.6% and we are calculating monthly payments, we must divide the annual interest rate by 12 to calculate the monthly interest rate.
- (rate) interest rate per period
- (NPER) number of payments until repaid
- (PV) present value of the loan (amount we are borrowing)
- (FV) future value of the money (for saving or investing)
- (type) enter 0 or 1 to indicate when payments are due.
 | equation goes into c7 =PMT(C4/12,C5,-C3)C4 is the yearly interest and since it's compounded monthly we divide by 12 C5 is the number of months (# of payments) -C3 is the amount of money we have (borrow - negative) |
Note that the rate is per period. If we have an annual interest rate of 9.6% and we are calculating monthly payments, we must divide the annual interest rate by 12 to calculate the monthly interest rate.