In our lives, we always come through ups and downs mentally, physically and financially too.
When it comes to the finances, we might need to apply for a loan. The loan is an amount borrowed from any financial institution on a fixed rate of interest and for a fixed term . We pay the emi at regular intervals.
The function which we are going to discuss helps us find out the payment to be made for the loan taken easily.
PMT function comes under the FINANCIAL FUNCTIONS category in Excel.
PMT FUNCTION returns the value of the payment to be made against a loan with the fixed interest and for a fixed tunure [ duration ].
PMT FUNCTION returns the PAYMENT TO BE MADE for a loan with a fixed interest and fixed installments .
When we have taken a loan , it is important to find out the installments.
This function returns installment for a fixed number of terms at fixed rate of interest.
THERE ARE A FEW PREREQUISITES WHICH WILL ENABLE YOU TO UNDERSTAND THIS FUNCTION IN A BETTER WAY.
The Syntax for the function is
=CUMIPMT(INTEREST RATE, NUMBER OF PAYMENT, CURRENT VALUE [PRINCIPAL] , FINAL FUTURE VALUE [ OPTIONAL ], TYPE)
TYPE [OPTIONAL DEFAULT IS 0] is the type determining the time of payment.
Let us try an example for the calculating the interest for a particular period.
Suppose we have the loan of 10000 dollars.
We took the loan for one year and will be paying monthly.
Rate of interest is 10% per annum.
Let us calculate the accumulated interest for the complete period.
Let us finalize the arguments for our formula
INTEREST RATE =10/12% as monthly payment so interest rate also converted to monthly.
NUMBER OF PAYMENT PERIODS 12 as payment is monthly for one year.
CURRENT VALUE is 10000 dollars.
FUTURE VALUE is 0. The value at the end of the tenure.
TYPE is 0
As we paid the interest monthly, the rate of interest was divided by 12.
The result comes out to be 878.97 which is to be paid monthly so that our loan becomes zero after 12 months.
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