In this post, you will be guided through simple and easy-to-follow steps on how to use the CUMIPMT function in Excel.
Microsoft Office Excel provides the CUMIPMT function, which returns the cumulative interest paid on a loan between a start period and an end period . This is a built-in Excel function under the Finance category.
CUMIPMT Function in Excel
The CUMIPMT function helps to calculate the cumulative interest paid on a loan taken out or earned an investment between the start period and end period.
=CUMIPMT (rate, nper, pv, start_period, end_period, type)
The CUMIPMT function and arguments
- Rate (Required) – The interest rate.
- Nper (Required) – The total number of payment periods.
- Pv (Required) – The present value.
- Start_period (Required) – The first period in the calculation. Payment periods are numbered beginning with 1.
- End_period (Required) – The last period in the calculation.
- Type (Required) – The timing of the payment.
Example for the CUMIPMT function in Excel
Consider an example of a loan amount of $100,000 where the interest is paid at a rate of 5% monthly with a total of 360 payments. Here, we consider the start period will be 1, the end period will be 360, and the type, that is the time for the loan is considered as 0.
How to use the CUMIPMT function in Excel?
- Open Microsoft excel and launch a workbook or create a new Excel sheet.
- As said in the description, you need the values of all the above arguments to carry out the CUMIPMT function and get the correct and cumulative interest.
- Enter the arguments in the same order of the syntax, one below the other, as shown in the picture below.
- At this time, in a similar way enter the values of each of the arguments in their corresponding adjacent cells in the worksheet.
- Below the tabulated list of arguments, select a cell and enter “Cumulative interest”, the cell to the right will display the value of the formula (making identification easier).
- When entering the formula, always start with the “=” operator. After entering the “=” operator enter CUMIPMT to initiate the formula followed by an open parenthesis. Excel recognizes “=’ as the start of a formula, if not included, excel will not accept and evade the execution of the function.
- With the parenthesis open, select the arguments in the order of syntax. The position of the cell will be visible in the formula. According to the order of the syntax, the value of the argument must be selected followed by a comma. The change in color of the cells aids to identify the name and of the cells in the formula.
- For the rate argument of the syntax, most of the interest rates are given annually, but here since it is a cumulative function, we are calculating for each month, that is 12 months in total, therefore the rate percent should be divided with 12.
- For the type argument, there are only 2 options to enter, that is 0 or 1. Enter 1 if the payment is made at the beginning of the period or enter 0 if the payment is paid at the end of the period.
- To conclude, close the parentheses and click enter. The cell which contains the formula will display the cumulative interest.
- Change the value from the numerical form to currency form, by using the option under the home tab.
1) As the interest is quoted as an annual interest rate, for this loan we will make a payment every month, which is 12 payments in a year. So we have to convert the rate and the number of payments from annually to monthly depending on the data.
2)For the interest rate, we should divide it by 12 to get the monthly interest rate. For the total number of payments, in the given example, it is 360, which is already quoted as monthly, that is 30*12 = 360