How to Plan Your Loans and Savings With the NPER Function in Excel

Careful planning is essential to ensure you meet your financial goals. Whether saving for a future purchase or managing a loan, it can be tricky to calculate the time it takes to achieve your goal.



This is where Excel’s NPER function comes into play. The function considers different variables like interest rates and payment amounts to give you the financial forecast you need. Let’s delve into the fundamentals and intricacies of the NPER function and empower you to make informed financial decisions.

What Is the NPER Function in Excel?

NPER is one of Excel’s financial functions, designed to assist you in making precise financial calculations. NPER stands for the number of periods, referring to the payment periods required to reach a financial goal. The function assumes consistent payments at a steady interest rate.

The NPER function takes several parameters and the syntax is as below:

 =NPER(RATE, PMT, PV, [FV], [type]) 
  • RATE: The interest rate for each period in percentages.
  • PMT: The constant payment made in each period.
  • PV (Present Value): The initial or current investment or loan amount.
  • FV (Future Value): The investment or loan’s desired future or target value. This is an optional parameter.
  • Type: Indicates whether payments are due at each period’s beginning (1) or end (0). This is an optional parameter.

Leaving the FV and type parameters blank sets them to the default zero. Since most banks calculate interest at the end of each pay period, the type parameter is usually left blank. The value you put in FV depends on context, which we’ll cover briefly.

Other than type, each of the parameters in the NPER function has its own function that can help you solve real-life financial problems in Excel.

Understanding the NPER Function in Excel

At its core, the NPER function helps you determine how many payments you need to reach a specific financial goal. This could involve any scenario, from saving for a vacation, paying off a mortgage, or planning for retirement.

To use this function correctly, you must grasp two essential concepts: currency flow and payment intervals.

The Currency Flow

There are three currency parameters in the NPER function: The payment you make each period, the present value, and the future value. The important note here is that these values aren’t all positive.

Cash flow in NPER Excel for savings

In a savings account, the payments you make each period (PMT) and the initial lump sum you pay (PV) are expenses. In contrast, the savings account’s future value (FV) is revenue. You lose PMT and PV from your pockets so that you gain FV in the savings account. Therefore, you should input PMT and PV as negative values.

Cash flow in NPER Excel for loans

The opposite is true for loans. For a loan, the PMT is positive, the PV is negative, and the FV is zero. Imagine a bank account with the loan amount as its present value. Here, you owe the bank and must pay off the loan amounts with interest. You make monthly payments to the bank’s account, and you stop paying once the amount you owe reaches zero.

The payment you make each month (PMT) is the amount you contribute to the negative PV to reach zero. Therefore, the PMT values should be positive. If you don’t repay the loan you received from the bank (PV), it will keep increasing, resulting in a greater negative number.

The Payment Intervals

Another essential factor to consider when using NPER is the payment interval. In both loans and savings accounts, one party is getting more than what they gave at the other party’s expense. There are two payment intervals to consider here: the interest period and the payment period.

The interest period refers to the interval at which the bank applies interest to the loan or pays interest on your savings. This is usually each month but can be every year as well. If a bank says they’ll give you a 12% interest rate on your savings, and they add this interest once a year, at the end of the year, you get 12% extra of your original deposit.

But, if they say it’s 12% yearly interest and they add a bit every month, they don’t just divide the 12% by 12 months and give you 1% each month. When the bank adds a little interest every month, the interest also starts earning its own interest (this is called compound interest). So, by the end of the year, you earn slightly more than 12%, specifically 12.68%.

Although the difference seems negligible, it can make a substantial difference with larger principal amounts over longer time periods.

Comparing different interest intervals for savings

The payment period refers to the frequency at which you either pay back the borrowed money or deposit additional money into your savings. The NPER function’s output is relative to the payment period in PMT. If the value you put in PMT is paid monthly, then the NPER output is in months. If the value you put is yearly, the output is in years.

The payment period goes hand in hand with what we discussed for the interest period. The frequency you choose for the payment period should match the frequency of the interest rate you’re dealing with. So, if the interest is applied monthly, you must input the monthly payment value as PMT. The NPER result won’t be accurate otherwise.

Real-Life Examples of Using the NPER Function in Excel

The NPER function proves valuable in various real-life scenarios. With a correct understanding of the payment intervals and the currency flow, you can use NPER to calculate any financial goal. Let’s take a look at two common examples.

1. Use NPER to Calculate Savings

Suppose you want to create a savings account for a vacation. You estimate the vacation will cost $1,000, and your bank offers a 12% annual interest rate paid monthly. So far, you’ve got the FV ($1,000) and the rate (12%). Say you want to put a lump sum of $100 (-PV) in the account and then pay $70 monthly (-PMT).

Sample Excel sheet for calculating savings with NPER

You can use the NPER function to quickly calculate how long it’ll take you to reach your savings goal. Input the values in a spreadsheet like the one above, and remember to use negative values for PV and PMT. Then, type the formula below to get the number of payments:

=NPER(C2/12, D2, B2, A2)

In this formula, C2 refers to the annual interest rate. Since the rate is applied monthly and the PMT is monthly as well, the formula divides the interest rate by 12 to get the monthly rate. D2 refers to the monthly payment amount (PMT). B2 is the initial deposit of $100 (PV), and A2 is the savings goal (FV).

Using NPER to calculate savings in Excel

Alternatively, if you have a specific target for NPER, you can use Goal Seek in Excel to solve for unknown variables, such as the initial lump sum (PV) and the monthly payments (PMT).

2. Use NPER to Calculate Loans

Excel’s NPER function is equally applicable when dealing with loans. Consider a scenario where you’re taking out a car loan of $15,000 with an annual interest of 16% applied monthly. You want to keep your monthly payments at $300. Using the NPER function, you can determine how many months it will take you to repay the loan.

Sample spreadsheet for calculating loan payments with NPER in Excel

You have the PV (-$15,000), rate (16%), and PMT ($300) values. Use the NPER formula below to calculate the number of payments in this example:

=NPER(B2/12, C2, A2)

In this formula, B2 refers to the annual interest rate. Since the PMT is in months and the interests are applied monthly, the formula divides this by 12 to get the monthly interest. C2 refers to the monthly payments (PMT). A2 is the PV, which is the negative loan amount. FV is left blank, so the formula correctly assumes it’s zero.

Calculating number of loan payments with NPER in Excel

NPER outputs 82.94, which means you’ll take approximately 83 months to pay off the loan. The adjacent cell divides this by 12 and states it’ll take seven years to pay off this loan.

Plan Your Financial Goals With NPER in Excel

The NPER function in Excel is a valuable ally for your financial forecasts. By enabling you to calculate the number of payment periods needed to achieve your savings or loan goals, NPER empowers you to take control of your financial future.

Remember, while the NPER function simplifies complex calculations, combining it with sound judgment and adapting it to the dynamic nature of real-world finance is still crucial.

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