Calculate APR in Excel

Learn how to find the Annual Percentage Rate (APR) for a loan in Excel, covering the entire borrowing cost including fees and expenses.

Using the RATE Function

The RATE function in Excel provides a straightforward way to calculate APR. It requires four inputs: the number of periods (loan term in years), payment amount per period, present value (loan amount), and future value (typically 0 for loans). Utilize the formula =RATE(number_of_periods, payment_amount, present_value, future_value) to determine APR.

Calculating Payment Amount with PMT

To find the payment amount necessary for the RATE function, use the PMT function. Input the interest rate per period, number of periods, present value of the loan, and future value. Apply the formula =PMT(interest_rate_per_period, number_of_periods, present_value, future_value) to compute the payment amount.

Visualizing with Amortization Table

An amortization table can be created to visualize the loan's payment schedule, showing the allocation towards principal and interest. This table helps distinguish the difference between APR and the nominal interest rate by including payment number, beginning balance, principal payment, interest expense, and ending balance.

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Common Use Cases

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  Calculating the annual percentage rate for various loan offers to compare borrowing costs
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  Determining the actual cost of a mortgage over the course of a year
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  Assessing the profitability of an investment by calculating its annual percentage return
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  Analyzing and comparing credit card interest rates to choose the most cost-effective option
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  Estimating the annual interest earnings on a savings account for financial planning

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