Why Excel is inadequate for creating amortization schedules

Using spreadsheets to create and manage amortization schedules may be risky.

Are you thinking about using Excel to set up an amortization schedule for a personal loan? There's one reason why you may want to think twice about that and consider using an amortization calculator: the vast majority of all spreadsheets contain errors.

Financial modeling company F1F9 estimates that almost 90 percent of all spreadsheets are defective in some way. This includes material defects in about half of all spreadsheets used by large companies.

Kenny Whitelaw-Jones, managing director of F1F9, told CNBC that "there are some real fundamental problems with the way spreadsheets are used" and these errors have cost businesses billions of dollars. His firm has even published an e-book detailing the "top 12 financial modeling horror stories and spreadsheet errors." In one instance, the omission of a minus sign reportedly caused almost $2.5 billion in losses for a mutual fund.

"We think that's really just the tip of a much bigger iceberg – spreadsheets are used ubiquitously, and there are some real significant problems with the way they are used and that leads to real risk of error, and we're seeing that time and again," Whitelaw-Jones said.

He added that greater standardization within the financial modeling industry would help cut reduce the frequency of errors. "But they are not eliminated – humans are still going to make errors," he said.

Any person or institution making a loan needs to be able to rely on the amortization schedule they create to arrange interest and principal payments. Using a professional-grade amortization calculator can help ensure that a workable schedule is created and adhered to throughout the life of the loan.