Calculate the Payment of a Loan with the PMT Function in Excel

Thanks to Excel’s PMT function, computing the monthly payment of a loan with various terms is easy.

In summary, you provide the function with the basic loan information, including the loan amount, the interest rate, and the term, and the function will compute the payment.

You provide this basic loan information to the function through the function arguments, or parameters. There are actually five function arguments, three of the arguments are required and two are optional. An optional argument assumes a default value when omitted.

The function works like this:

=PMT(rate, nper, pv, [fv], [type])

Where:

• rate is the rate per period, and must be consistent with the nper argument and with the period you wish to return.  In other words, if you want to compute an annual loan payment, then you should express this as an annual interest rate and nper should be expressed in years as well.  If you are looking for a monthly payment, then you want to convert this rate into a monthly rate and should express nper in months as well.
• nper is the number of periods.  This needs to be consistent with the period expected for the monthly payment and with the rate argument.  If you want to return a monthly payment, express this argument in months, for example 360 for a 30 year term.
• pv is the amount of the loan, or, present value.
• [fv] is the optional argument for future value. In most cases, this will be 0 and since it is an optional argument if you omit it, the default value is 0.
• [type] is an optional argument to define when the payment occurs.  0 or omitted tells the function the payment is at the end of each period, and 1 means the beginning of the period.

Let’s see how this might work in a worksheet.

Let’s try to determine the monthly payment of a home loan.

We are borrowing \$200,000 for 30 years at 4%.

Since we want the monthly payment, we know we need to express the function arguments in monthly periods. So, we would set up the function as follows:

=PMT(.04/12,30*12,200000)

Where:

• .04/12 is the annual interest rate divided by 12 so that it is expressed as a monthly rate
• 30*12 is the number of periods, 30 years expressed as the number of months
• 200000 is the amount borrowed

Of course, it is more likely that we would place the basic loan values into cells, and then use the cell references in the formula, something more like what is shown in the screenshot below.

For the most part, Excel’s financial functions work on a cash flow model, and since the loan amount is a positive inflow, the subsequent payments are an outflow. This is why the monthly payment amount is returned as a negative number. One small tweak is that we’ll flip the sign of the returned value by preceding the function with a negative, as follows:

=-PMT(B1/12,B2*12,B3)

Where:

• B1/12 is the annual interest rate divided by 12 to convert to a monthly rate, since we want a monthly payment to be returned
• B2*12 is the number of years multiplied by 12 so that the argument is expressed in months
• B3 is the amount of the loan

And, the final sheet is shown below:

Thanks Microsoft!

1. Denise Weber

I came to the Blog to see if I can reinforce what I have learned.

2. Kelli C

As is the case in the classroom, Jeff you make it so clear and relevant in the BLOG format. THANKS.

3. Sunny K.

4. Carter Wicks

Great function – All these years of only using TValue. I hope to pick up many more useful functions throughout the course.

5. Benjamin Wilkinson

Yes, very useful function…Obviously not for compound interest..?

6. Kando O.

I wanted to see the further explanation/reinforcement on the PMT formula, you made the explanation on this exercise so clear and simple. Thanks!

7. Renanah P.

This is a very useful function to know!

8. Chris Wagner

I’ve been using the payment function for a while. One tip: Make sure you use the round function if you are building a schedule of payments, like an amortization schedule. After all, a borrower can’t pay in increments less than a penny.

9. Amy W

10. Christian P

The PMT formula is a powerful tool when its explained in a simple manner. Thank you!

11. James

Very interesting, and completely applicable

12. CHAO JIN

It’s really nice example. It’s very helpful. Thank you.

13. Brian M

Use this function all the time in banking and financial analysis. Thanks

14. Alex

Will be useful in the future. Thanks.

15. Elizabeth Wareing

This trick won’t only help me at work, but will help me with personal financial planning! Thanks Jeff!

16. Anita

This will definitely be helpful in the future…great comment!

17. Victor

18. Jesse B

I was surprised that you divide the percentage by 12 for the monthly amount. I totally would not have figured that out on my own. 0.4/12! It’s always good to study these functions in detail, or you may forget what goes where.

New information and the examples are great.

20. Anneliese Gilbert

Clearly explained example – well stepped out so it is easy to follow- good explanation around required and optional values.

21. Hannah Wiser

Great tip! I know I will be able to use this!

22. Wendy Rohaly

23. MaryAnn R.

Thank you very helpful. I know that I will be able to use this.

24. Yesenia A.

Excellent PMT function explanation. Thanks alot.

25. Kathy Shannon

Thanks Jeff! Great formula to know!

26. Wan-LI Wu

1) Normally when we mention about interest rate and the term in our mind set – it refers to annual interest rate and annual term.
But to use the “PMT” function to calculate the constant loan payment – it refers to “monthly” payment. So, I re-construct the “PMT function” and find out it is very helpful for me to use as follows:
=PMT(annual rate/12, annual term*12, pv, [fv], [type])

2) Knowing “ loan received” as positive inflow and monthly” loan payment” as negative outflow are very beneficial concept.

The hardest part about using the PMT function is to make sure the rate and term agree. (I always forget to divide the annual rate by 12 when calculating a monthly payment!)

28. Christof Mohr

Great function! It is good to always be aware that a percentage rate is almost always given in annual terms, unless specified.

29. Allison J Lausten

A useful tool.

30. Sheri

Interesting tool. I’m curious to put the info for my original home loan in and see if it works out to the same monthly payment. Something to try when I get home and have access to that info.

31. Cindy Johnson

A familiar tool, but prefer lectures to reinforce concepts……thanks!

32. Joe Horne

Thanks for the reinforcement!

33. Christine Mast

Thanks once again for an informative post!

34. Latha Nair

Jeff explained this function very simple. I am going to use it in future for sure.
Thank you

35. Wanda Hagen

Explained the concept very easily.

36. Michael Fullen

Useful information, thank you.

Very easy to follow and understand!

38. Lori

Good to know! Thanks!

39. Lisa Croyle

Love this function. Well explained, easy to follow, and useful.
Thanks.

40. Paul Burns

Easy to use!

41. Mirna

Fun exercise, thanks!

42. Teresa

You have a way of explaining things to make them seem so simple!

43. Melaney

44. Jazmyne

initially I was highly confused, but after reading through it (a few times) and opening a new sheet to put the formula to work – it makes perfect sense! love it!

45. karina larsen

That was a great piece of information!

46. Penne Steidl

I have to compute payments all the time. This really helps.

47. Dwain Hendrickson

Great tip. Is semi-annual payments expressed by dividing the rate by 6 and the multiply the payments by 6?

1. jefflenning Post author

Dwain,
Thanks! Semi-annual payments made twice per year would be accommodated by diving the annual interest rate by two and multiplying the annual number of payments by two.
Hope it helps!
Thanks
Jeff

48. Ryan Gendron

Thank you for better explaining the PMT function. I learned this in my undergrad studies on a calculator and excel . Your post explains it very well.

49. Bill Winkler

Week one review. Have used this function for a long time, frequently as a part of a loan amortization table.

50. James Higginson-Rollins

Good explanation of the simple interest calculator function.

51. Sachin Naik

what if we want to calculate the quarterly installment? the interest rate will be divided by what? and the period will be multiplied by what?

1. Kurt LeBlanc

Hey Sachin,

All interest rates are stated in annual terms, so QUARTERLY is divided by 4 and the payment periods multiplied by 4.

Let me know if you need more help:)
Kurt LeBlanc

52. Kelly Williams

Clear and concise explanation. Thanks!

53. Logan Nemeth

54. Michael Ferguson

Great page!

55. Tony Mehle

56. Monique` O'Dell

Thank you for the breakdown of exactly why each function is either multiplied or divided.

57. Cynthia Hart

Cool! Where I work, we bought a separate software package that does that and present values and that sort of thing. We knew Excel was supposed to be able to do all this, but we could never get it to work!

58. pavan kumar ms

59. hassan Al khatab

does this function presume the simple or compound interest rate?!

how did you get the monthly payments to show the value between parenthesis? when i did this function the result came negative like this -\$85.61 ( in red). how did you make the negative sign like parenthesis (85.61)?

1. Kurt LeBlanc

Hey Hassan

The formula uses compounding interest.

As for the negative value…it is a cash flow issue. The PV is positive, so the cash flow would have to be negative to equal \$0 when its done: one in, one out. You can simply add a negative sign before the function (=-PMT) to change the negative result to a positive:)

Kurt LeBlanc

60. Simona Opran

61. Li

Useful formula!

62. Sayed Ali Reza Kazemi

thanks…. very useful

63. Justin

I am loving the wealth of information I have access to, this is yet another function I could see myself using regularly. Thanks!

64. Valeri Stevens

SImple and clear explanation — per your usual style. Thank you!

I’m guessing that you left out the ROUND function to keep the example simple. I think you’ll agree that rounding is essential when dealing with money and multiplication — such as is involved with the PMT function — especially if you calculate more than one payment and then add them together. For example, rounding and displaying the result to the same number of decimal places assures that the total returned by Excel will be the same as it would be if you used a calculator to add up the displayed values. For anyone interested, Excel offers several types of rounding (e.g. round up, round down, round nearest) — go to the Excel help and search for ROUND for details.

1. jefflenning Post author

Thanks for the comment about rounding 🙂

65. Jon Johnston

I have created worksheets the long, hard way. This will be very helpful.

66. Ron

I found the “ctrl + arrow” and “ctrl+shift+arrow” commands useful when working with large speadsheets.

67. James Solbakken

On those occasions when I had to compute functions like “payments” on loans I always constructed the formulas manually. It worked but why do that when there is a prefabricated function for that? I confess I was easily intimidated by the complex appearance of the formulae. Now it seems so easy I don’t know what I was so scared of.

68. Maryann Losier

Very useful info. Thanks Jeff 🙂

69. Marco

70. Felicia Walton

Great tool!!!

71. Tara

Very helpful. Thanks for communicating this function in a way that could be easily understood!

72. christy

Good to know.

73. Sharon McAlister

Thanks!

74. TK

Very useful. Thanks

75. Lina Tsankova

Useful function

76. sudip mishra

u r great .because I understood this pmt function after reading your post.thanks lot jf Sir

Thanks for the simplified explanation. Very useful for helping others, especially non accountants, to understand how loan payments are derived.

78. Bonnie Walston

Useful function!

79. Tina

Thanks Jeff. Good to know!

80. Nika Carter

Very detailed info for the PMT function.

81. Karen

Great refresher!

82. Lisa Hughes

I knew some of the conditions in a function were optional. From this example I learned that the brackets [ ] designate which are optional.

1. Kurt LeBlanc

Very good Lisa!

Kurt LeBlanc

83. Alex

Very useful and practical function!

84. Olga

great, thanks!

85. Brittni

Very useful function!

86. Chandra

Thanks for sharing this.

87. Kari Docekal

88. Pamela Roller

Great explanation of the payment function!

89. Erica Christensen

Thank you!

90. Keith Lober

The PMT function is useful and quick and easy to use.

91. Colleen Flynn

I’ll be using the PMT function now that I know about it

92. Donna Young

This will definitely come in handy Thanks!

93. Morris E. Antar

useful formula

94. Linda Hoyle

I see myself using the PMT function quite a bit in the future

95. Nick Grgas

Nicely done

96. Yasuko

PMT is one of few functions that I know.

97. Linda

Although it is useful to use Excel to compute when considering multiple scenarios, if only need to compute one, I prefer my TI calculator.

98. Lou

Learned something else new! Thanks

99. Lonni

Used this a TON in my MBA Financial Management course!

100. Susan Lippold

101. Aurdrea Weiman

I could see this as being useful in a repayment plan for a consumer. Those are unusual for us to have, so using something like this would make sense.

102. Danielle Serdar

Followed the course to look for the PMY function. Dont know if I’ll use this much since I have TValue 5.

103. Mirna Cereceres

Great to learn the PMT function!

104. Linda Vogel

Nice to know, but not necessary to my business.

105. Hector Aparicio

thanks for the information about PMT. I am pretty sure it will useful soon

106. Vivian Hauer

I like your work of using the formula in an example. I did not know that the rate needs too correspond to the number of periods. (monthly rate for no of months in the entire period). Very good tip!

107. Sonia Mack

Great tool to use when contemplating large purchases. Will it fit in my budget?

108. Yolanda Williams

I used this tool to help me decide on which student loan payment plan was best for me.

109. Dawn Taylor

I appreciate the clarity of your blog post about the handy-dandy PMT function!

110. Callaway Dorsey

Not a function I use much but, nice to know.

111. Justin Nguyen

Thanks for the tip

112. Renee Kelly

Thanks for the tip

113. Jessica

Sent her from the Excel University class – good post!

114. Cindy Wrecza

Good post. Thank you.

115. Doris

This seems like it could come in handy, and is pretty intuitive to use.

116. Marty Teresi

We are currently refinancing, so this came in handy.

Thanks,
Marty

117. cynthia osborne

this will come in hand in refinancing.

118. Andrew S. Haines

119. Jose

Thanks Jeff for this helpful payment function insight!

120. Hai

Dear Everybody,
My name is Hai. I am from Viet Nam. I have a Excel’s problem (using PMT function) as below: “Mr. Adam wants to sign an insurance contract. He expects to earn \$110000 after 18 years at 15% annual interest rate. How much money he must pay monthly for the insurance company, knowing that when signing the contract, Mr. Adam paid \$10000?”
With my understanding, where:
rate: 15%/12
nper: 18*12
pv: 10000
fv: 110000
I tried calculate PMT in 4 formulars:
1. =PMT(15%/12,18*12,10000,110000) = (\$235.03)
2. =PMT(15%/12,18*12,-10000,110000) = \$33.31
3. =PMT(15%/12,18*12,10000,-110000) = (\$33.31)
4. =PMT(15%/12,18*12,-10000,-110000) = \$235.03

I do not know which formula is right. I’m very confuse in using PMT function, especially using PV and FV parameter sign (- or +). Could you explain to me the problem above? I’ve read Excel’ help and other examples on the web but still not sure exactly.
In general, for all the arguments, cash you pay out, such as deposits to savings, is represented by negative numbers; cash you receive, such as dividend checks, is represented by positive numbers?

Thank you so much for your help!

Sincerely yours,
Hai.

1. Jeff Lenning Post author