nper - Required. Total number of payment periods (e.g., 60 for 5-year monthly loan)
pmt - Required. Payment made each period (must be constant, negative for outflow)
pv - Required. Present value - loan amount (positive) or investment amount (negative)
fv - Optional. Future value - default is 0 (loan fully paid)
type - Optional. 0 = payment at end of period (default), 1 = beginning
guess - Optional. Your guess for the rate - default is 10% (0.1)
| A | B | |
|---|---|---|
| 1 | Loan Amount | $25,000 |
| 2 | Monthly Payment | $500 |
| 3 | Term (months) | 60 |
| 4 | Annual Rate: | =RATE(B3, -B2, B1) * 12 7.47% |
5-year loan, $500/mo payment
=RATE(...) → 7.47% APR
Quarterly payments, residual value
=RATE(...) → 8.24% annual
30-year mortgage verification
=RATE(...) → 5.79% APR
Monthly payments to clear balance
=RATE(...) → 18.92% APR
Use the RATE function in Excel to verify if your auto lender is charging the correct APR on your car loan. By entering the loan amount as present value, monthly payment as a negative number (cash outflow), and total payment periods, the Excel RATE formula calculates the actual monthly rate, which you then multiply by 12 to get the annual percentage rate. This is essential for car buyers, auto finance managers, and consumers who want to ensure their loan terms match what was quoted, helping detect calculation errors or predatory lending practices before signing the loan agreement.
| A | B | C | |
|---|---|---|---|
| 1 | Item | Loan Amount | $20,000 |
| 2 | Monthly Payment | Payment | $450 |
| 3 | Term (months) | Periods | 48 |
| 4 | Annual Rate: | =RATE(C3, -B2, B1) * 12 6.45% |
Determine the actual rate of return on an investment that pays periodic income with a residual value using the Excel RATE function. Enter initial investment as negative (cash outflow), periodic payments as positive (cash inflow), number of payment periods, and any final residual value. The RATE function in Excel then calculates the periodic return rate, which you convert to annual by multiplying by the periods per year. This Excel RATE formula is critical for financial advisors, investment analysts, and portfolio managers evaluating annuities, bonds, dividend stocks, and structured investment products to compare actual returns against projections.
| A | B | C | |
|---|---|---|---|
| 1 | Investment | Initial | -$10,000 |
| 2 | Quarterly Payment | Income | $300 |
| 3 | Quarters | Periods | 20 |
| 4 | Residual Value | Final | $2,000 |
| 5 | Annual Return: | =RATE(C3, B2, B1, B4) * 4 8.24% |
❌ The Problem:
✅ Solution:
=RATE(60, -500, 25000)For loan payments you make, use negative values. The RATE function in Excel requires cash flow sign conventions: payments out are negative, loan proceeds received are positive. This matches standard financial modeling where outflows use negative signs.
❌ The Problem:
✅ Solution:
=RATE(60, -500, 25000)Convert years to periods: 5 years × 12 months/year = 60 total periods. The Excel RATE formula requires the total number of payment periods matching your payment frequency. For monthly payments, multiply years by 12; for quarterly, multiply by 4.
❌ The Problem:
✅ Solution:
=RATE(60, -500, 25000) * 12RATE returns periodic rate (monthly, quarterly, etc). Multiply by periods per year to get APR: monthly rate × 12, quarterly × 4, semi-annual × 2. The RATE function in Excel calculates the period rate first, then you annualize it for standard APR comparison.
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