# Reducing Rate of Interest Calculator with Flat in Excel

In this tutorial, we'll guide you through creating an Excel calculator that calculates reducing interest rates with flats rates in a few simple steps. You can use the Calculator to see what methods provide a higher financial return. So, let's dive right into the content, without any delay.

## Flat Rate of Interest

The terms "reducing balance rate" and "flat rate interest" are unfamiliar to many people in the financial world. Being in the dark when handling your finances is not a good idea. Financial catastrophes can result from a lack of understanding of fundamental finance concepts. After completing this tutorial, these two phrases will be clear to you. Additionally, you will receive an Excel calculator with a flat and decreasing interest rate. First, let's look at the formula used to determine the flat interest rate.

An example will help you better comprehend this definition. Say you borrowed \$200,000 at a six per cent annual percentage rate (APR). You have five years to repay the debt and must make an instalment payment each month. (\$200,000 x 4 x 7%) / 48 will be your flat rate interest. You will pay your interest on this each time you make an instalment. Let's compute your principal repayments now.

The result of plugging in the numbers is = \$200,000 / 48. Thus, your monthly payment total will be \$4,166.67+ \$1,166.67= \$5,333.33.The following figure shows a summary of the computation done above utilizing my flat rate interest calculator. In addition, the Calculator displays the following data:

The entire amount paid: \$256,000.00

\$56,000.00 was paid in interest overall.

For the next five years, you will be paying an interest rate of 28% per cent. Do you realize that the rate is high?

## Reducing Interest Rate

Banks and other financial organizations extensively use this strategy because it offers a more efficient way to manage loans. Using the loan information provided above, let's determine the decreasing interest rate.

• A loan amount is \$200,000.
• Annual Percentage Rate(APR) 7%
• A 4 years loan tenure is specified.
• Monthly is the payment frequency.

The monthly rate must first be determined if the frequency of payments is monthly:

The next step is to use Excel's PMT function to determine the loan's monthly PMT:

This time, the numbers are as follows: rate = 0.005833333 nper = 48; [nper = total number of periods];-loan = -200,000; [loan equals negative since we want the PMT to be positive].

\$4789.25 is the value that it returns.

Let's now talk about how the entire thing operates:

### First Month:

You simply take out the loan at the beginning of the first month. That leaves a \$200,000 balance. You are responsible for paying the financial institution \$4789.25 (the PMT payment) at the end of the initial month. What percentage of this sum (\$4789.25) is interest paid? The interest for the first month is \$1166.67 (\$200,000 x 0.005833333). Therefore, \$1166.67 of the \$4789.25 total is given as interest. You will be refunded \$4789.25 less \$1166.67 or \$4789.25 as a portion of your principal. Your new principal, therefore, will be as follows at the end of the first month: \$200,000 - \$3,622.58= \$196377.42.

### Second Month:

At the beginning of the second month, \$196,377.42 is your new principal. By the conclusion of the second month, you are giving the financial institution \$4789.25, which is the PMT amount. To what extent is interest paid on this sum (\$4789.25)? The interest for the second month is \$196,377.42 x 0.005833 = \$1145.5324. Therefore, the interest payment is \$1145.5324 out of \$4789.25. Your principal will be reduced by the remaining amount, which is \$4789.25- \$1145.53= \$3643.72. Consequently, your new principal after the second month will be \$196,377.42 - \$3643.72= \$192,733.7. That's how the entire procedure moves forward. You can see the entire procedure in the following pictures.

The graphic below illustrates how, at the most recent payment, we only paid \$27.78 towards interest and used the remaining \$4,761.47 to pay down our principal. We have 0.00 as our final balance. Therefore, that is our final payment to the bank.

See, using a loan with a decreasing interest rate is easy. The total interest we pay on this system is only 14.94% at the end of the day.

## Excel Calculator with Step-by-Step Instructions for Reducing Interest Rate

Here are four easy steps to develop an Excel calculator for flat and reducing interest rates. First, all of the necessary values will be entered. The interest rate on a flat rate will then be determined. The payment schedule will be located third. We will complete the steps by calculating the lowering rate of interest.

First, input the necessary values.

This initial step will involve typing the necessary values. We will employ data checking to further enable users to set the data through a dropdown list. In the data validation dialogue box, we will enter the permitted values in the source field, separated by commas.

• Start by typing these values.
• Next, choose cell C8.
• Next, choose Data Validation from the Data tab.
• Next, enter these values in the source area separated by a comma and click OK.
• Begin of the Period
• End of the Period

• The following are the numbers for the frequency of payments and interest compounding. Within the data validation source, type these values separated by a comma.
• Weekly
• Bi-weekly(Every two weeks)
• Monthly
• Semi-monthly
• Bi-monthly(Twice every quarter)
• Quarterly
• Semi-annually
• Yearly
• It will, therefore, finish the first step after completing all of these.

Identifying Flat Rate Interest

The flat rate of interest will be determined in this second step. The functions VLOOKUP, PMT, and IF will be used. We are also using the name range to make things easier to apply. For the VLOOKUP function's lookup range, we have utilized a table. To prevent accidental value changes by users, this table is hidden.

• Enter the following data in the given cell range B12:B16.
• Next, enter this equation in cell C14.

Formula Explanation

• First off, "Monthly" is selected for the payment frequency.
• Secondly, our function's lookup range is the periodic_table. We can view the table by revealing the "Tables" sheet or by accessing the name range.
• Thirdly, we'll provide back the third column's values.
• Finally, we have employed FALSE to denote exact matching, and we are calculating the value for the scheduled no. of payments by multiplying the data with the loan terms (years).
• The following is how we may see the name range.
• First, choose Name Manager from the Formulas tab.
• As a result, a dialogue box will show and display the values for the designated ranges.
• It will show a Dialog Box with Name Manager.
• To view the "periodic_table," we can also unhide the "Tables" sheet.
• Enter the following formula in cell C15 after that:

Formula Explanation

• Three VLOOKUP functions are available here. We have once more utilized the name range. In this case, cell C9 contains the value of "payment_frequency," while cell C9 contains "interest_compunded."
• Interest Compounded, Periodic Table, 3,0; VLOOKUP

Result: 12.

• Payment frequency, periodic table, 3,0; VLOOKUP

Result: 12.

• Next, enter an additional formula into cell C16. Here, we use a conditional; if the payment type represents the start of the period, the calculation will provide 1. In the absence of such, we shall receive 0.

• After that, enter this formula and hit ENTER. We may calculate the monthly instalment by using this calculation.

• We will now calculate the flat rate of interest (summary) numbers.
• Enter the formula below and click the Enter key.

• Next, input this formula and hit the Enter

• Next, enter this formula and hit ENTER.

• After that, enter this formula and hit ENTER.

• Next, input this formula and hit the Enter key.

• Next, enter this formula and hit ENTER. This will bring this tutorial's second step to an end.

Compute the Payment Schedule

This third stage is where we'll figure out the payment plan. In this stage, the AND, OR, EDATE, & IFERROR functions are the four new functions we will use. Let us dive right into the procedures.

• Enter the formula below into cell H21 and hit ENTER to get started.

• The formula should then be typed and filled in downward.

• Next, input this formula and proceed to fill it in from below.

• Next, input this formula and proceed to fill it in from below.

• Type this formula after that, then fill it in downward.

• Next, type this formula and fill it out in descending order. It will return 0 if cell B22 has a value of 1 and the form of payment is made at the start of the month. If not, the "H21*rate" portion will be returned.

• Fill with the formula downward after typing this formula.

• Fill with the formula downward after typing this formula.

• As a result, the third phase will be finished; then, the payment schedule should reflect this.

Determine the Interest Rate Reduction

In this final phase, we will determine the rate of reduction of interest. In this phase, the SUM function will be utilized. Furthermore, the cell ranges F22:F10971 and G22:G10971 have been designated in the interest_paid and principal_paid, respectively.

• Enter the following formula first.

• Next, enter this formula.

• Finally, type one more formula and hit Enter.

• At last, we finished building an Excel calculator for flat and reducing interest rates.

## Instructions to follow while using this Calculator

This Calculator is incredibly simple to use. In this part, we'll walk you through the values you must enter and adjust.

To use this Calculator, enter the following values:

• Amount of Loan
• The rate of return on assets (APR)
• Terms of the loan (years)
• Date of Loan (mm/dd/yy)
• Sort of payment. The list is drop-down. You'll be paid in two different ways. The period's beginning and conclusion. Pick one that works with your loan.
• Frequency of payment: There is a drop-down list as well. Payment frequencies are selectable:
Interest Compound Days or Months No. of payments per year
Weekly 7Days 52
Bi-Weekly 14Days 26
Semi-Monthly 15Days 24
Monthly 1Month 12
Bi-Monthly 2Months 6
Quarterly 3Months 4
Semi-Annually 6Months 2
Yearly 12Months 1
• Interest Compounding Frequency: Generally, the frequency of your payments will match the interest compounding frequency. Certain nations, like Canada, have semi-annual interest compounding with monthly payments. Your payment frequency will, therefore, always be equal to the interest compounding frequency, with very few exceptions.

No more variables need to be entered. The Calculator will do the remaining job.

## Excel sheet featuring an EMI calculator with a prepayment option

Assume we have an Excel spreadsheet with the details of the EMI computation and a prepayment option. We will use Excel's PMT and IPMT finance algorithms to determine the EMI from our dataset with the prepayment option. PMT is a payment, while interest on payment is obtained using IPMT. With an Excel sheet with a prepayment option, we will use these financial tools to create the EMI calculator.

Steps:

• See each of these fields and type in. Additionally, we created the template for 6 months. If necessary, you can add more.
• To obtain the starting balance value, type this formula.

• Then, please enter a new formula and fill it in downward to get the EMI

• The interest amount can be obtained by typing another formula and filling it in.

• Next, fill the formula downward by typing another formula to obtain the primary amount.

• Enter the remaining amount in the formula and continue typing.

• Next, enter the percentage of the debt that has been paid back using a different calculation and fill it out.

• Ultimately, it will finish creating an Excel document with an EMI calculator and a prepayment option.

## Simple Interest Loan Estimator with Excel Formula

Simple interest is the amount calculated from the principal of a bank loan or the first deposit made into a bank savings account. Another way to put it is the amount of interest, which immediately increases from the principal. Simple interest can be expressed mathematically as follows:

The following are indicated by the symbols in this case:

• I am the amount of interest that was generated on the principal.
• P is the principal sum.
• R is the annual interest rate.
• n is the number of periods

Now, we'll guide you through three appropriate instances of using Excel formula to create a basic interest loan calculator. This section will compute the primary amount using the PPMT function.

Steps:

• Enter a formula in cell D7 and fill in the following fields first:

• Next, enter and complete another formula.

• Fill in the formula by typing another one after that.

• In cell F12, put another formula after that:

• Proceed to enter the closing balance by typing this formula and then complete the formulas found in columns F and G.

• Fill it in after typing this formula.

• Lastly, enter this formula to obtain the total values & correctly fill it in.

• This will complete all the necessary steps to use the Excel formula to produce a basic interest loan calculator.

## Conclusion:

In conclusion, in the above tutorial, we learned the step-by-step process of creating Excel calculators to calculate reducing interest rates. We have covered various key concepts, and different tools for managing loans efficiently and have demonstrated the process of calculator creation. With Excel functions like VLOOKUP, PMT, IPMT, and PPMT, you can customize these calculators to fit your financial needs, making informed decisions with sureness. Whether for finance specialists, business professionals, or individuals managing their loans, this tutorial serves as a valuable resource for learning and implementing financial calculations in Microsoft Excel.

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