Final answer:
To use Goal Seek in Excel for loan calculations, set up an amortization formula, then use Goal Seek to find out how many payments it takes for the loan balance to reach zero. Divide the number of monthly payments by 12 to get the number of years. Paying more than the required monthly payment saves interest and reduces the loan term.
Step-by-step explanation:
To use Goal Seek in Microsoft Excel to determine how many years it would take to pay off a $300,000 loan with monthly payments of $2,000 at a 5% interest rate, first you need an equation that represents the loan's balance over time. This could be a loan amortization formula. Once you have set up the basic loan calculation, you proceed with the following steps:
- Go to the 'Data' tab in Excel and click 'What-If Analysis'.
- Select 'Goal Seek' from the drop-down menu.
- In the 'Set cell' field, you would refer to the cell where the loan balance is calculated.
- In the 'To value' field, enter '0' since you want to find out when the loan balance reaches zero.
- In the 'By changing cell' field, refer to the cell containing the number of payment periods.
After setting up Goal Seek and running it, Excel will adjust the number of payment periods until the balance is zero, indicating how many months it will take to pay off the loan. To find the number of years, divide the resulting number of months by 12.
For the provided example, if paying slightly more each month, say $1,948.54, results in a total amount paid of $573,847.99, you are saving more than $73,000 compared to the total cost if only minimum payments are made.
Moreover, it would take approximately 294.5 months or about 24.5 years to pay off the loan. Making a larger monthly payment than required can result in significant interest savings and a shorter loan term.