**What Is RATE Function In Excel?**

The

RATE Function in Excelcalculates the rate of interest for paying the specified amount of a loan over a time period. The input provided to this formula is in integers, and the output is in percentages.

The **RATE function **is an inbuilt function in the Excel “**Financial**” category so that we can insert it from the “**Functional Library**” or directly enter it in the worksheet as a formula.

For example, we apply the RATE function to the present value of the loan amount ‘$20,000’, the monthly payment amount is ‘$500’, and the period is “5 years” to calculate the interest rate.

First, select cell **B5**, enter the formula ** =RATE(B4,B3,-B2)*12, **and press the “

**Enter**” key.

The output is ‘**17.27%**’, as shown above. We can see here that the input values are integers, and the formula returns a percentage output.

##### Table of contents

###### Key Takeaways

- The
**RATE Function in Excel**calculates the Interest rate, for a loan, over a time period. - Two factors commonly used by the finance industry are Cash outflow & Cash inflow. The Cash outflow is a negative number denoting the outgoing payments, and the Cash inflow is a positive number that denotes the incoming payments.
- We can convert the number of periods to monthly or quarterly as per our requirement.
- The function returns the output as 0. If there is no decimal value, we must format the cell value to the percentage format.

**RATE() Excel Formula**

The Syntax of the **RATE Excel formula** is,

The arguments of the **RATE Excel formula** are,

: It is a mandatory argument. It is the total number of periods over which the loan or investment is to be paid.*nper*: It is a mandatory argument. It is the payment for each period.*pmt*: It is a mandatory argument. It is the present value of all future payments.*pv*: It is an optional argument. It is the future value that is the goal of the investment.*fv*: It is an optional argument. It is the formula that will consider the due dates for payments.*type*: It is an optional argument. It is the guess on the Interest Rate.*guess*

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**How To Use RATE Excel Function?**

We can use the **RATE Excel Function **in 2methods, namely,

**Access from the Excel ribbon.****Enter in the worksheet manually.**

**#Method 1 – Access from the Excel ribbon**

First, choose an empty cell > select the **“Formulas” **tab → go to the “**Function Library**” group → click the **“Financial” **option drop-down → select the **“RATE”** function, as shown below.

A **“Function Arguments” **window appears. Enter the value in the **“nper,” “pmt,” “pv,” “fv,” “type,” **and **“guess” **fields accordingly, and Press “**OK**”.

**#Method 2 – Enter in the worksheet manually**

- Select an empty cell for the output.
**Type =RATE(**in the selected cell. [Alternatively, type “**=R**” and double-click the**RATE function**from the list of suggestions shown by Excel.- Enter the arguments as cell values or cell references.
- Press the “
**Enter**” key.

**# Basic Example**

Mr. Raj Mohan has taken a loan of $50,000 for five years. The installment amount of payment is $1,000. Let us calculate the Rate of interest using the **RATE Excel Function**.

In the table, the data is,

- Column A contains a Description.
- Column B contains Amount.

The steps to calculate the Interest Rate **using RATE Function in Excel** are as follows:

**Select cell B8 and enter the formula =RATE(B4 i.e., the period, calculated as five years multiplied by 12, which gives 60.****Put a comma, and then select the cell that contains the installment amount, i.e., “B3”. Now, the formula will be =RATE(B4,B3****Put a comma, and then select the cell that contains the present value loan amount, i.e., B2. Now, the formula will be =RATE(B4,B3,-B2****Put a comma, and then select the cell that contains the future value, i.e., “B5”. Now, the formula will be =RATE(B4,B3,-B2,B5****Put a comma, and then select the value of the “type” argument as ‘1’. Now, the formula will be =RATE(B4,B3,-B2,B5,1****Put a comma, and then select the cell that contains the guess value, i.e., “B7”. Now, the formula will be =RATE(B4,B3,-B2,B5,1,B7****Finally, close the bracket and press the “Enter” key. The complete formula is:***=RATE(B4,B3,-B2,B5,1,B7)*.

Mr. Raj Mohan’s interest rate is ‘**2.21%**’, as shown above.

**Examples**

We will understand some advanced scenarios **using ****RATE Function in Excel.**

**#1 Example**

Ms. Kathrine has taken a loan of $1,00,000 for five years. The future value of the amount is $2,00,000. Let us calculate the Rate of interest using the **RATE in Excel**.

In the table, the data is,

- Column A contains a Description.
- Column B contains Amount.

The procedure to calculate the Interest Rate using the **RATE function in Excel** is:

**First, s**elect cell **B5**, enter the formula ** =RATE(B4, ,-B2,B3)**, and press the “

**Enter**” key.

[Cell **B4** contains the period,** t**he space for the installment argument is left blank, cell **B2** contains the present value loan amount, and cell **B3** contains the future value.]

The output is ‘**14.87%**’, as shown above.

**#2 Example**

Mrs. Lorence has taken a loan of $1,20,000 for five years. The payment installment amount is $2,500. Let us calculate the Rate of interest using the **RATE in Excel**.

In the table, the data is,

- Column A contains a Description.
- Column B contains Amount.

The procedure to calculate the Interest Rate using the **RATE function in Excel **is:

First, select cell **B5**, enter the formula ** =RATE(B4,B3,-B2)*12**, and press the “

**Enter**” key.

**[**Cell **B4** contains the period, cell **B3** contains the installment amount, and cell **B2** contains the present value loan amount.]

The output is **9.15%,** as shown above.

**#3 Example**

XYZ company has borrowed $50,00,000 from the financial bank for ten years, and the payment installment amount is $5,000. Let us calculate the Rate of interest using the **RATE function in Excel**.

In the table, the data is,

- Column A contains a Description.
- Column B contains Amount.

The procedure to calculate the Interest Rate using the **RATE formula in Excel **is:

**First, s**elect cell **B5**, enter the formula ** =RATE(B4,B3,-B2)*12**, and press the “

**Enter**” key.

[Cell **B4** contains the period calculated as ten years multiplied by 12, which gives 120, cell **B3** contains the installment amount, and cell **B2** contains the present value loan amount.]

The output is –**33.05%,** as shown below, i.e., the interest rate is calculated as negative.

**Important Things to Note**

- The
**RATE function in Excel**calculates using trial and error. After 20 iterations, an Error is returned. - To calculate the payment period’s interest rate, we can multiply by the number of months.
- The positive numbers are used to represent cash inflows, and the negative numbers to represent cash outflows.
- We can keep the “
” argument as optional or ignore it, as it is just a starting value for an iterative procedure.*guess*

**Frequently Asked Questions**

**What is the formula for the RATE function in Excel?**

The **RATE Function in Excel **calculates the rate of interest for a specific period.

The formula for the **RATE in Excel **is as follows;*=RATE(nper,pmt,pv,[fv],[type],[guess])*

In the following example, the formula is used to apply the **RATE function **to the present value of the loan amount ‘$1,00,000’, the monthly payment amount is ‘$1,000’, and the period is “10 years” to calculate the interest rate in cell B5. The formula is entered in cell **B5**. The complete formula is ** =RATE(B4,B3,-B2)*12, **and the result is returned as ‘

**3.74%**’, as shown below.

**Why is the RATE function Not Working?**

The **RATE Function in Excel **is simple to use, but still, mistakes occur. The following are the errors that are the reasons for the function not working.

1. The **“#NUM!”** error occurs when the result or solution fails to execute.

2. The **“#VALUE!”** error occurs when some of the values in the arguments are not a number.

**Where is the RATE function in Excel?**

We can use the **RATE Function in Excel **as follows:

First, choose an empty cell → select the **“Formulas” **tab → go to the “**Function Library**” group → click the **“Financial” **option drop-down → select the **“RATE”** function, as shown below.

A **“Function Arguments” **window appears. Enter the value in the **“nper,” “pmt,” “pv,” “fv,” “type,” **and **“guess” **fields accordingly, and Press “**OK**”.

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