Loan payoffs are simple calculations that is 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.
Step 1: Input the details of 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
Step 2: Calculate the Rate of interest per period.
For above figures, rate of interest per period = (8/12) % = 0.67%
Step 3: Calculate the loan payoff per period using excel PMT formula.
- 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.