Things You'll Need:
- Pocket calculator
- Spreadsheet program
- Online access to use loan calculators
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Step 1
Decide the value of the interest rate period. Determine this by taking the annual rate of interest and dividing it by the time between payments. For example, a monthly loan with an 8 percent interest rate would be charged .667 percent per month. A quarterly loan would be charged 2 percent per month. Choose whether the first payment is made at the beginning or end of the period. This will vary the total number of dollars paid by one payment.
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Step 2
Determine the total length of the loan. Convert the length of the loan into the number of periods. A two-year loan paid monthly would be 24 payments. Determine how much is being borrowed. Assume $50,000 is borrowed. Determine the monthly payment by solving on a spreadsheet program. Download and install the Open Office software program. It is free and readily available at the Download website and other free sites.
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Step 3
Choose and open the spreadsheet program. Click an open cell. At the top of the spreadsheet find the "Insert" tab. Scroll down the tab and open the "Function" choice. A screen will appear. On the top of the screen choose "Financial" for the category. Under the "Function" category, scroll to the PPMT (repayment) choice. On the right side a menu will appear. Click "Next."
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Step 4
Insert the four parameters discussed above. Rate should be .0067. The period for this illustration should be 1. NPER is the number of periods or 24. The amount borrowed is $50,000. After entering the data click "OK" and the answer, $1927.28 appears in the cell.
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Step 5
Experiment with other functions that allow you to solve for any of the functions above. Experiment with the FV, NPV, PV and other functions to solve for any of the parameters discussed above.
