PMT

Unit 33: PMT

The PMT Function (short for payment) calculates periodic payments for a loan. It is a financial function that is commonly used to determine the periodic payment for a new car loan, for example.

When you are using the PMT Function, you need to know a variety of details about the loan:

  • Price of Item (car, boat, yacht, etc.)

  • Down Payment (in dollar amount – could be around 10%-15%, but a variety of down payment amounts are sometimes available)

  • Loan Amount (Price of Item – Down Payment)

  • Period Length (how often payments are made each year – the period might be daily, weekly, monthly, quarterly, or semi-annually)

  • Periods Per Year (how many payments are made each year)

  • Interest Rate (expressed in rate per year, also known as APR – annual percentage rate – this is the rate of interest the lender will charge and how the lender makes a profit)

  • Rate Per Period (APR / Periods Per Year)

  • Term (Years in the Loan)

  • Total Periods in Life of Loan (Periods Per Year X Term, Nper argument)

Pay close attention to the cell reference you put in the Rate field – this is the interest rate per period, not the APR or annual percentage rate.

UNIT 33 – PMT

 

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