Excel Mastery: Unveiling the Secrets of the Excel PPMT Function for Precise Principal Payments

Examples of the Excel PPMT Function

Here are few examples demonstrating the usage of the Excel PPMT function:

Example 1: Calculating the Principal Amount of a Loan for a Specific Month

Assuming you have a loan with an annual interest rate of 9%, a total of 12 monthly payments, and the present value of the loan is $10,000. To find the principal payment for the third month, use the following formula:

Let’s break down the formula: =PPMT(B2/12,3,B3,-B4)

• B2/12: This part calculates the monthly interest rate. Since the annual interest rate is 9%, dividing it by 12 gives the monthly interest rate.
• 3: This is the period or month for which we want to calculate the principal payment. In our case, it is the 3rd month.
• B3: This represents the total number of payment periods, which is the loan term in months.
• -B4: This is the present value or loan amount. The negative sign indicates that it is an outgoing payment.

The result, $811.55, represents the principal portion of the monthly payment for the 3rd month. The normal EMI (monthly payment) is $874.51, and the difference between the EMI and the PPMT result is likely the interest portion of the payment for the 3rd month.

Example 2: Calculating the Principal Amount of a Loan for Each Month.

In this example, we will utilize the same parameters as in Example 1.

Let’s break down the formula: =PPMT($B$2/12,A7,$B$3,-$B$4)

• $B$2/12: This part calculates the monthly interest rate. Since the annual interest rate is 9%, dividing it by 12 gives the monthly interest rate. The dollar signs indicate absolute references, ensuring that the cell references don’t change when we copy the formula to other cells.
• A7: This represents the period or month for which we want to calculate the principal payment.
• $B$3: This is the total number of payment periods, which is the loan term in months. It is an absolute reference.
• -$B$4: This is the present value or loan amount. The negative sign indicates that it is an outgoing payment. It is an absolute reference.

The Monthly Payment and Interest columns in the table represent the overall monthly payment and the interest portion, respectively. The sum of the Principal column should match the total loan amount, and the sum of the Interest column should represent the total interest paid over the loan term.

Note: We won’t go into optional argument details here. If you want to learn more, check out our PMT function. It has detailed examples and explanations for optional arguments.

Extra Notes

● Ensure that the units for rate and nper are consistent (both annual or both monthly).

● If the interest rate is less than or equal to -1 or the number of payment periods is 0, you will see a #NUM! error.

● When any of the given values are not numbers, you will get a #VALUE! error.

● To know the total paid over the loan time, just multiply the PMT amount by the number of payments (nper).

● If the Excel PPMT Function result is way higher or lower than expected, double-check that you are using the right units for interest rate and number of periods. Make sure to convert annual rates to monthly or quarterly rates, and years to weeks, months, or quarters, as shown in previous examples.