Microsoft Office Tutorials and References

In Depth Information

**Figuring Loan Calculations**

Calculating the interest rate

The RATE function tells you what the interest rate is on a loan. This function

is great for comparing loan offers. Although a loan offer will always include

an interest rate, you may want to use Excel to double-check and ensure that

some other fees are not included in the payments. Then you can compare

different loan scenarios to see which one offers the true lowest interest rate. I

don’t think anyone wants to pay more than they have to!

Some lenders charge fees as well as an annual interest rate. When these fees

are figured in, the
effective interest rate
will be higher than the stated interest

rate. You can use the RATE function to determine the effective interest rate

for a loan. If it’s the same as the stated interest rate, then you know no fees are

being added.

The inputs for this function are the principal, the number of payments, and the

fixed amount of the periodic payment. Here’s how to use the RATE function:

1. Enter the following in separate cells within the worksheet:

•Loanprincipal

•Numberofpaymentperiods

•Amountyouwillpayeachmonth

Enter the monthly payment amount as a negative number because it is a

cash flow out. You can add labels to adjacent cells to identify the values,

if you want.

2. Position the cursor in the cell where you want the results to appear.

3. Enter
=RATE(
to begin the function entry.

4. Click the cell where you entered the number of periods, or just enter

the cell address.

5. Enter a comma (
,).

6. Click the cell where you entered the monthly payment amount, or just

enter the cell address.

7. Enter a comma (
,).

8. Click the cell where you entered the principal amount, or just enter

the cell address.

9. Type a
), and press Enter.