Excel Tip: Calculating Interest

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Microsoft Excel is an ideal tool for calculating the cost of borrowing money, but are you doing so in the most efficient manner? In this article, I'll describe how you can use the CUMIPMT function to calculate interest expense for a loan, whether for a month, a year, or the length of the loan - all within a single worksheet cell. I'll also show you how to add an amortization schedule to any workbook with just a couple of mouse clicks.

 
Before I describe the CUMIPMT function, let's first take a look at the PMT function, which calculates the payment amount for a loan. PMT has 3 required and 2 optional arguments:
rate - The interest rate for the loan expressed as a monthly rate.
nper - The length of the loan in months.
pv - The amount being borrowed, also referred to as the present value.
fv - This optional argument allows you to specify a future value if a balloon amount is due at the end of the loan. Omitting this argument implicitly states that the loan is to be paid down to 0.
type - This optional argument allows you to specify if payments are made at the beginning of each period, or you can omit the argument to indicate that payments are made at the end of each period. You may also specify 0 in this position to explicitly indicate that payments are made at the end of each period.
 
Figure 1: The PMT function calculates the monthly payment for a loan.
 
As shown in Figure 1, a monthly payment of $586.04 for 36 months is required to pay back $20,000 at an interest rate of 3.5 percent. The PMT function always returns a negative amount because Excel sees the payment as an outflow. I omitted the 2 optional arguments, so in this case, the PMT function assumes the loan is paid to 0 and payments are made at the end of each period.
 
You construct formulas using CUMIPMT in a similar fashion to PMT, but in this case, all 6 arguments are required:
rate - The interest rate for the loan expressed as a monthly rate.
nper - The length of the loan in months.
pv - The amount being borrowed, also referred to as the present value.
start_period - The starting month from which to calculate interest on the loan. Use 1 to calculate interest from the start of the loan, or 13 to calculate interest for just the second year of the loan.
end_period - The ending month through which to calculate interest on the loan. Use the same value as the nper argument to calculate interest for the life of the loan, or 24 to calculate interest for just the second year of the loan.
type - Specify 0 to indicate that payments are made at the end of the period, or 1 for payments made at the start of the period.
 
Figure 2: The CUMIPMT function computes total interest for all or part of a loan.
 
As shown in Figure 2, the CUMIPMT function shows that borrowing $20,000 at 3.5 percent for 36 months will cost $1,097.50. Although not shown, the cost for the second year of the loan is $368.55. To calculate the principal paid back for a given portion of the loan, use CUMPRINC, which utilizes the same sequence of arguments as CUMIPMT.
 
As you can see, it's possible to use worksheet functions to calculate interest and principal for all or part of a loan without building out a full-scale amortization schedule. However, when one is needed, right-click on any worksheet tab and then choose Insert, as shown in Figure 3. Click on the Spreadsheet Solutions tab, and then double-click on Amortization Schedule. 
 
Figure 3: Add an amortization table to any workbook with just four clicks. 
 
See all articles by David Ringstrom.
About the author:
David H. Ringstrom, CPA heads up Accounting Advisors, Inc., an Atlanta-based software and database consulting firm providing training and consulting services nationwide. Contact David at david@acctadv.com or follow him on Twitter. David speaks at conferences about Microsoft Excel, and presents webcasts for several CPE providers, including AccountingWEB partner CPE Link.
 
 
 

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thanks for this advice ...now no more salute to any banker......

Thank you! Very helpful.

thanks :)

Very clear. Thanks a lot. I am able to create my own sheet now

Is the result the present value of the interest cost over the life of the loan? Or is it the future value (at the end of the loan) of all of the interest accumulated over the life of the loan? Do I need to do an additional adjustment find the present value? Thanks for this explanation.

Jason,

Great question! Yes, CUMIPMT does return the present value of the interest earned over the life of the loan. To prove it out, right-click on any worksheet in Excel, choose Insert, and then double-click on Loan Amortization in the Spreadsheet Solutions tab. This will add an amortization table to your workbook, and you can run the same numbers as you used with CUMIPMT to see that the results are the same.

David

What about if the loan with the interest will be due on the date given and the borrower does not paid for the remaining amount on that date, what would be the formula to get the penalty for the existing days/month?

I WANT THE SAME FOR CALCULATION HOW TO CALCULATE

Details
of Projected Interest Expense

Actual
Projected

Month
Week 1
Week 2
Week 3
Week 4
Week 1
Week 2
Week 3
Week 4

Particulars
Oct-14
Nov-14
Nov-14
Nov-14
Nov-14
Dec-14
Dec-14
Dec-14
Dec-14

Interest expense(Gross)

Other borrowing costs

Total
-
-
-
-
-
-
-
-
-

Less: Interest capitalised

Interest Expense(Net)
-
-
-
-
-
-
-
-
-

if I know the cost(3,915) and the principal (19,800) what is the actual interest for 2.5 years?

To solve this I'd ideally need the interest rate and the term of the loan, but I can figure out with just one of those pieces of information. If you don't have either then I can't give you an accurate response.

What about if the loan with the interest will be due on date given and the borrower does not paid for the remaining amount on that date, what would be the formula to get the penalty for the existing days/month?

In that case the borrower isn't paying down principal any more, they're simply accruing interest on the unpaid balance. One approach would be to take the interest rate and divide it by 365. Multiply that figure by the unpaid balance times the number of days that the loan is past due. So on an unpaid balance of $10,000 at 4.5% interest of $55.48 would be due when the balance is 45 days old. There are lots of different ways to write a loan contract, so make sure you review the promissory note to determine treatment of missed payments or balloon balances.

How can a balloon payment be included in CUMIPMT calculation? I am looking for the total interest amount for loan with regular monthly payments and balloon at the end. Thanks so much for any advice.