HEVT - Monthly Payments Lesson

Monthly Payments

Introduction

It’s important to decide whether or not you can afford a loan payment before accepting a loan offer. There’s a different process for loans with monthly payments when compared to the process for single-payment loans. The interest is compounded here, which makes the equation a bit tougher! Monthly payments still tend to be preferred because it’s easiest to budget and pay back the loan this way. Although, you’ll see that you can end up spending a lot of money on interest! 

In Your Notebook: Please take down important notes as you click through the interactive activity below. Click on the variables in the formula to learn more about them.

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Using a Calculator for Monthly Payments

The following video will give an example of how a calculator can be used to help determine the monthly payment for a loan. Take notes and follow along using your own calculator.

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Using a Spreadsheet Program 📊

Calculating Monthly Payments in Excel

The following video will give an example of how a spreadsheet program, such as Microsoft Excel, can be used to calculate the monthly payment for a loan. Take notes and follow along using your own spreadsheet.

Summary:

• The monthly payment formula in Excel is PMT. 

PMT(rate, nper, pv)

rate = APR/12

nper = number of payments (the number of years times 12)

pv = principle value or amount borrowed

• The total payback is the total cost that includes the amount borrowed and the interest paid. You can find this by multiplying the monthly payment by the number of payments. 
• Interest paid can be found by taking the total payment and subtracting the original amount borrowed. 

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Monthly Payment Practice

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