To calculate the total interest paid on a loan using the PMT function in Excel, you need to perform the following steps:
Determine the interest rate per period: If your loan's annual interest rate is 5%, and you make monthly payments, the monthly interest rate would be 5%/12 = 0.4167%.
Determine the number of payment periods: Calculate the total number of payments you will make over the loan term. For example, if you are making monthly payments for 3 years, you would have 3*12 = 36 payments.
Calculate the monthly payment: Use the PMT function in Excel to determine the monthly payment amount. The syntax for the PMT function is PMT(rate, nper, pv, [fv], [type]). The rate is the interest rate per period, nper is the total number of payment periods, pv is the present value or loan amount, and fv is the future value (usually 0 for loans). The [type] argument is optional and specifies when payments are due (0 for the end of the period, 1 for the beginning).
Multiply the monthly payment by the total number of payment periods to get the total amount paid on the loan.
Subtract the loan amount from the total amount paid to get the total interest paid on the loan.
Here is an example formula to calculate the total interest paid on a loan using the PMT function in Excel:
= (PMT(rate, nper, pv)) * nper - pv
Replace "rate" with the monthly interest rate, "nper" with the total number of payment periods, and "pv" with the loan amount.
Note: Ensure the rate and nper values are appropriately adjusted for the periodicity of loan payments to obtain accurate results.