The PMT function in Google Sheets is used to calculate the periodic payment for an annuity investment based on constant-amount periodic payments and a constant interest rate.
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The PMT function is used to find the correct payment amount that will lead us to the right investment goals.
This function is useful because it helps you plan around your investments and reach your investment goals in the proper manner. It is an easy, simplified method to help in your financial analysis problems.
Let’s look at an example.
You want to choose what investment to pursue. You have the information about the cost of the investment, the number of periods that the payment will take, and the fixed interest rates.
How should we go about this problem?
The PMT function needs all the parameters mentioned above to help calculate the right monthly payments for the investment.
The Anatomy of the PMT Function in Google Sheets
The syntax of the PMT function is as follows::
=PMT(rate, number_of_periods, present_value, [future_value],[end_or_beginning])
Let’s have a look at each part of the function to understand what is going on here:
=is the equals sign that starts off any function in Google Sheets.PMTis the name of our function.rateis the interest rate.number_of_periodsis the number of payments to be made.present_valueis the current value of the annuity.future_valueis an optional attribute that is the future value remaining after the final payment has been made.end_or_beginningis and optional attribute that sets whether the payments are due at the end (0) or the beginning (1) of each period. If left blank, it will be 0 by default.
You should also make sure that consistent units are used for the rate and number_of_periods. For example, if you have a loan, paid monthly, that goes on for longer than 12 months, and you have the annual percentage rate on hand, you need to divide this rate by 12. In the same vein, a loan paid quarterly requires you to divide the provided annual percentage rate by 4.
A Real Example of Using the PMT Function
Let’s look at the example below to see how to use PMT function in Google Sheets.
Calculating the Monthly Payments in Google Sheets
This is a simple problem. We want to find the monthly payments for a car loan.
The function takes three arguments. So in the equation, it will look like:
=PMT(C2/12,C4,C5,0,0)
Like mentioned above, because we are given an annual percentage rate, we need to keep our payment periods and rates consistent. That is why you can see in the example, it is divided by 12.
As a result, we get -$565.26. It’s negative because it is a payment.
This simple problem can be practiced to perfection. Use the link below to get a copy of this problem set:
How to Use the PMT Function in Google Sheets
In this section, we will show you a step-by-step process on how to use the PMT function in Google Sheets.
In this problem, we will be calculating the payments to two different loans
Calculating PMT in Google Sheets
- To begin, click on a cell to make active, which you would like to display the PMT. For the guide. The PMT will be in Cell C7.
- Next, type the equal sign ‘=’ to start writing the function. Follow this with “PMT” or “pmt” – Google Sheets functions are not case sensitive so either is fine.
- The auto-suggest box will create a drop-down menu. Select the PM function by clicking it. It is the first to pop up on the list, but take care to choose the correct function.
- After the opening bracket ‘(‘, you will add the rate attribute. Note that since we are given monthly payments and an annual percentage rate, we need to divide the rate by 12, as seen in the formula below.
- Next, we enter the number of periods or payments.
- Next, we enter the present value of the investment.
- There is an optional attribute of future value. We can keep this blank, or choose zero.
- There is an optional attribute of payment end or beginning. Since we will be paying the loans at the end of each month, pick 0. Leaving it blank will leave to 0 as the default. You should even see a preview for the end result.
- Click enter and you will find the monthly payments.
- Do this for the next case, remembering that since the payments are quarter, you should divide the annual percentage rate by 4 to keep consistent.
- You are done!
Given a practical problem where you should completely solve for the correct monthly payment, use PMT to find and study the monthly payment for your important financial decision-making.
And there you have it – you can now use the PMT function in Google Sheets together with the other numerous Google Sheets formulas to create even more effective formulas.
