How to Calculate Monthly Payment with APR in Excel

This article illustrates how to calculate monthly payment with APR in Excel. Annual Percentage Rate or APR is a indicator for the costs the borrower must pay on the loan. Often the borrower need to pay some extra fees and charges along with interest which are not included in the annual interest rates. You should compare loan offers based on APR instead of interest rates. Excel has inbuilt functions to calculate monthly payments and APR. Follow the article to learn how to do that in Excel.

What Is Annual Percentage Rate (APR)?

The Annual Percentage Rate, commonly knows as APR, is the rate of cost that the borrower must pay on the loan. It includes interest and all other cost or charges related to the loan. The cost of loan, except interest, may include upfront fees, processing charges, inspection fees, preclosure charges, legal and valuation charges, etc. APR can be calculated using the formula given below.

Assume you have taken out a $500 loan at a 10% yearly interest rate. So, you need to pay extra $50 each year for taking the loan. But, the lender may charge you more fees associated with the loan making the APR, for say, 12%. Then you need to pay $60 instead of $50.

APR calculation is crucial to compare between different loan offers. Because it gives the real cost the borrower need to pay on the loan. In many countries like the USA, it is mandatory for the lender to quote the APR to it’s borrower. It gives the borrower a clear idea about how much extra money s/he need to pay each year over the loan.