How to Make a Loan Amortization Schedule in Excel

Creating a loan amortization schedule in Excel is a crucial skill for anyone looking to manage their finances effectively. Whether you’re a small business owner, a financial advisor, or just managing personal finances, understanding how to break down your loan payments can provide clarity and help you plan better.

In this article, you will learn how to make a loan amortization schedule in Excel. This step-by-step tutorial will help you calculate your monthly payments, interest, and principal, giving you a clear view of your loan repayment plan. With these easy-to-follow instructions, you’ll be able to create a comprehensive loan amortization schedule in no time, ensuring you stay on top of your financial commitments. Let’s get started and simplify your loan management with Excel!

A loan amortization schedule is a detailed breakdown of your loan payments over time. It acts like a roadmap, showing you exactly how much of each payment goes towards paying down the loan’s principal (the actual borrowed amount) and how much goes towards interest (the cost of borrowing). Here’s why understanding your loan amortization schedule is crucial:

• Transparency: It provides a crystal-clear picture of how your loan progresses. You’ll see how much of your initial payments go towards interest, and how that amount gradually decreases as you chip away at the principal.
• Budgeting: With a clear understanding of where your money goes, you can create a more accurate budget. You’ll know exactly how much to allocate towards your monthly loan payment.
• Planning for the Future: Amortization schedules can help you plan for future financial goals. By seeing how much your loan balance reduces over time, you can estimate when you’ll be debt-free and strategically plan your finances.

1. The PMT function calculates the fixed amount of each periodic payment throughout the loan term. This payment remains consistent over time.
2. Conversely, the PPMT function calculates the portion of each payment allocated to reduce the loan’s principal amount, which is the initial borrowed sum. This principal payment grows with successive payments.
3. Lastly, the IPMT function determines the share of each payment designated for covering the interest charges. This interest payment decreases with each payment, reflecting the declining loan balance.

Step 1: Open a new Spreadsheet and Define Input Cells

Open a new spreadsheet and add the below components of loans in the mentioned Cells.

• C2 – Annual Interest Rate
• C3 – Loan Term in Years
• C4 – Number of Payments Per Year
• C5 – Loan Amount

Please refer to the below image for easy understanding.

Step 2: Create an Amortization Table with Labels

Now create an amortization table with the labels (Period, Payment, Interest, Principal, Balance) in A7:E7. Now enter the series number equal to the total number of payments (1-12), for this simply enter 1,2 & 3 in A8, A9 & A10 and drag the cell until A19.

Step 3: Calculate Total Payments (PMT Formulae)

To calculate total payments use PMT Function PMT (rate, nper, pv, [fv], [type])

Rate: Calculate the interest rate per payment period by dividing the annual interest rate by the number of payment periods within a year.

Nper: Determine the total number of payment periods by multiplying the number of years by the number of payment periods per year.

pv: Enter the Total Loan Amount

PMT FORMULAE: =PMT($C$2/$C$4, $C$3*$C$4, $C$5) in B8 and then drag the column until A19.

After entering the formulae in B8 and till B19, you will see the same payment amount for all the periods.

Step 4: Calculate interest (IPMT formulae)

Now find out the interest of each periodic payment by using the IPMT Function formulae in C8.

IPMT Formulae: =IPMT($C$2/$C$4, A8, $C$3*$C$4, $C$5)

After entering the formulae in C8, drag the column until C19

Step 5: Calculate Principal (PPMT Formulae)

Now calculate the using the PPMT Function in D8.

PPMT Formulae: =PPMT($C$2/$C$4, A8, $C$3*$C$4, $C$5)

After entering the formulae in D8, drag the column until D19.

Step 6: Calculate the Remaining Balance

Now to calculate the Remaining Balance for each period we’ll apply two separate formulas.

To determine the balance after the initial payment, located in cell E8, sum the loan amount (C5) and the principal of the first period (D8): =E8+C5+D8

Note: since the loan amount is represented as a positive number and the principal as a negative number, the latter is effectively deducted from the former.

For the second period onwards, find the balance by adding the previous balance to the principal for the current period: =E8+D9

Now drag down the column till E19, and you will get the periodic remaining balance figures.

Important Note: As shown in the image, by default, the values are visually represented with a red font and enclosed within parentheses. However, if you prefer to display all results as positive numbers, you can easily do this by adding a minus sign before using the PMT, IPMT, and PPMT functions.

Step 7: Make a Loan Summary

Now create a loan summary to see the exact status of your loan. Create a Loan Summary and Add the Below components in the mentioned Cells.

• Total Payments (E2): =-SUM(B8:B19)
• Total Interest (E3): =-SUM(C8:C19)

Amortization schedules, while commonly associated with long-term loans, possess versatility that extends far beyond traditional mortgages. These financial tools find relevance in a range of scenarios, catering to the needs of various entities. Let’s explore who can benefit from utilizing amortization schedules:

1. Moneylenders: Moneylenders extend loans and oversee repayment. And, Amortization schedules help them track clients’ payment progress.
2. Student Loan Borrowers: Higher education costs can be daunting. Educational institutions use amortization schedules for efficient monthly payments.
3. Car Buyers: Buying a vehicle with a loan, Amortization keeps borrowers on track, reducing interest burden.
4. Credit Payers: If Unpaid credit card balances, Amortization schedules guide payment planning.
5. Mortgage Loan Borrowers: Owning a home, for that use an amortization schedule for structured payments

“Amortization schedules play a crucial role in financial planning. They empower individuals, families, and businesses to manage debt effectively. Whether you’re buying a home, funding education, or handling business loans, understanding amortization helps you stay on track. By breaking down payments into interest and principal components, these schedules demystify repayment. “

What could be a loan amortization plan in Excel?

A loan amortization plan in Excel is a spreadsheet that tracks how your loan payments are divided between principal (what you borrowed) and interest (the cost) over time. It helps you understand your debt repayment progress.

Why make a loan amortization plan in Excel?

You’d create a loan amortization plan in Excel to see a clear breakdown of your loan payments: how much goes to principal vs. interest each month. This helps you budget and track your progress towards becoming debt-free.

How frequently ought I overhaul my loan amortization schedule?

You ought to upgrade your plan at whatever point there are changes to your loan terms, extra installments, or any adjustments to the interest rate. Frequently checking on and upgrading your plan guarantees precise follow-up on your credit loan.