PPMT Function in Excel

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PPMT Function Excel

The PPMT function in Excel is a financial function used to calculate a principal's payment. The value returned by this function is an integer value. For instance, you can utilize the PPMT function to get the principal amount of an installment for the first period, the last period, or any period between.

For example, suppose the loan amount is $50,000 in cell B1, and the interest rate is 5% in cell B2. The period of the loan taken in cell B3 is 10 years. Then, we can calculate the principal amount for 1 month of the loan using the PPMT Excel function as follows:

=PPMT(B2/12,1,B3*12,B1)

= $321.99.

PPMT Function Excel

Syntax

Explanation

The PPMT function in Excel has the same fields as the PPMT in Excel except for an extra field – 'Per.'

Arguments	Description
Rate	Interest Rate of the Loan
Per	Specific payment period
Nper	It is the total number of payment that has to be made
PV (Present Value)	Amount of the loan (principal amount)
FV (Future Value)	Amount as a future value that wants to have left after final payment
Type	Whether the payments are made at the beginning (1) or end of the month (0)

"Per" is the specific pay period for which one wants to compute the amount paid towards the principal. FV in Excel is an optional argument. If omitted, the fv takes on the default value 0.

How to Use the PPMT Function in Excel? (with Examples)

Example #1

Suppose we need to calculate the payments on the principal for months 1 and 2 on a $10,000 loan, which is to be paid off in full after 3 years with the monthly payment of $500. Interest is charged at a rate of 5% per year. The loan repayments are to be made at the end of each month.

To calculate this, we will use the PPMT in Excel.

Applying the PPMT function with all input values as shown above for every month's installment, the principal amount for each month.

Similarly, applying the PPMT function to other periods, we also have the principal amount of each period, as shown below.

As you can see above, for each period, the principal amount which totals the amount as the loan amount, which is $200,000.

Example# 2

If the loan amount is $10,000 with an interest rate of 10% and the loan period is 2 years. Then the principal amount for 1 month of the loan will be calculated using the PPMT in Excel, as shown below.

Using the PPMT function, we compute the principal amount for the 1 month.

Here, the fv is optional. Since there is no future value, we took it as 0, and the type is 0 as the payment is made at the end of the month. Even if we skip the last two arguments still, we will get the desired result.

Things to Remember

The input rate has to be consistent. If the payments are made quarterly, it will convert the annual interest rate into the quarterly rate (rate%/4), and the period number has to be converted from years to quarters (=per*4).
By convention, the loan value (pv) is entered as negative.