A PMT function is used when you want to know how much your monthly payment would be on a loan based on an interest rate and a constant payment schedule. In the following example, you are looking at purchasing a car and will need to borrow $20,000. The bank will give you a loan at 6.8% interest and you will have to pay back the loan in 3 years.
Step 1: How to calculate a payment using Excel PMT Function
The first step calculating your payment using Excel's PMT function is to enter the following:
In the cell you want your formula to appear:
1. Type the equal sign
2. Type PMT
Step 2: NPER
The next step is to enter the number of payments for the life of the loan. If you have a three year loan and you are making monthly payments, then you will have 36 (12 months multiplied by the number of years) NPER.
Step 3: PV
The last step in the PMT function is to enter the PV. PV stands for present value and represents the amount of money that you are borrowing. For example: If you are borrowing $20,000, the PV would be 20000. Take note that you do not include commas in Function Arguments.