# How to Calculate Loan Payoff

Loan payoffs are simple calculations that are required every time you take a loan from a bank or a financial institution. To prevent yourself from being cheated by others or to be able to help others with their loans, follow the steps below for the loan payoff calculation.

## Loan data preparation

Input the details of the Loan Amount, number of years of loan repayment, Rate of Interest, and Period of Loan payment.

• Loan Amount: Principal amount borrowed
• Years of Loan repayment: Total no. of years in which loan is completely repaid.
• Rate of Interest: Per annum interest on the principal amount.
• Period: The span during which the loan payment is made (Ex: Each month, each quarter etc.). Here, No. of Periods = No. of Years * 12 (monthly repayment) = 10*12.

Note: You can choose a shorter loan amortization period, e.g., 6, 12 or 30 months instead of 10 years.

## Loan Payoff Calculations

Calculate the Rate of interest per period.

For the above figures, the rate of interest per period is = (8/12) % = 0.67%. ## PMT Formula

Calculate the loan payoff per period using the Excel PMT formula.

=PMT( Rate, Nper, Pv, Fv, Type)

• Rate: Per period interest rate.
• Nper: Total no. of periods - Pv: Initial Value of the loan (has to be negative for PMT formula).
• Fv (optional): Fv stands for future value. If after paying off the last loan payment, you want to have any balance left it is the future value. Fv can be omitted (considered 0 if omitted).
• Type (optional):

0: If payment is to be done at end of period.

1: If payment is to be done at beginning of period. Loan payoff can be simply calculated by using the PMT formula and using the correct variables. Full formula is =PMT(E8,E6,-E4,0)

Good luck with paying off your loans.