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Calculate Loan Affordability
Hi all,
I know the PMT formula can calculate the payment of a principal loan, if given the interest rate, number of payments and principal. However, what is the formula to calculate the principal loan if given the payment, interest rate and number of payments? In other words, based on my income, and terms, what is the loan I can afford?
Thanks so much!
Rodrigo_ wrote: ``as @Joe User suggested, the [....] present value formula is as follows``
No. As I suggested, use the PV function (click here). That is:
PV(rate, nper, pmt, fv, type)
I don't know why anyone would use a complicated math formula when such a simple function is readily available.
KdilagSB
as JoeUser2004 suggested, the formula to calculate the principal loan if given the payment, interest rate and number of payments is called the present value formula.
The present value formula is as follows:
PV = PMT / ((1 + r)^n - 1) / (1 + r)^nwhere:
PV = present value (i.e., the principal loan amount)
PMT = payment per period
r = interest rate per period
n = total number of payment periodsTo use this formula to determine the loan amount you can afford, you would first need to determine the payment you can afford based on your income and expenses. Then, you would need to choose an interest rate and a number of payment periods (such as years) that would work for your budget.
Once you have determined these variables, you can plug them into the formula to calculate the maximum principal loan amount that you can afford based on the terms of the loan.Rodrigo_ wrote: ``as @Joe User suggested, the [....] present value formula is as follows``
No. As I suggested, use the PV function (click here). That is:
PV(rate, nper, pmt, fv, type)
I don't know why anyone would use a complicated math formula when such a simple function is readily available.
