#### 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)**

Calculate the loan balance:

Use the PV function to calculate the current loan balance. The syntax for the PV function is: =PV(rate, nper, pmt, [fv], [type]). For example, if you have made 12 payments on a 60-month loan, and the original loan amount was $10,000 with an interest rate of 5%, the formula would be: =PV(5%/12, 48, -200, 10000). This will give you the current loan balance.

Calculate the payoff amount:

To calculate the loan payoff amount, simply add the current loan balance to any outstanding fees or charges. This will give you the total amount needed to pay off the loan.

## Shaniqua

Thank you for that