Student: Question from Natalie P
Course:  Fundamentals of Financial Planning

Student Question:


What is the general rule for using a negative number when entering payments? I am calculating the second problem on this web page and am having trouble determining why I need to use a negative when entering payments. Thanks so much!

Charles has just taken out a $21,000 automobile loan for five years at 9.25%. The required monthly payment is $438. Charles thinks he can make monthly payments of $500. If he does, how long will it take him to pay off the loan?

Instructor Response:

Hi Natalie!

Great to hear from you!

So, this is a common question. The easiest way for me personally is to think of which direction the cash flow is going. Is it going OUT of your pocket or IN to your pocket?  That is how I always try to think about it if I’m ever unsure. In this example, Charles is making a $500 payment monthly payment. Money is coming OUT of his pocket to pay for his car; therefore, a negative number is entered.

Does that help to clarify?  Let me know!