Basically I want to know the formula for figuring what interest would be on a monthly payment for a car assuming I make the same exact payment all the time. Any help would be very much appreciated. Thanks.

 

Honestly, I can't remember the formula as I would just use my financial calculator or excel. In excel use the IPMT function.

 

In excel, use the IPMT function, if you're doing it the old fashioned way:

P = (i x principal x [1+i]^n)/([1+i]^n-1)

Where:
P = interest payment
i=interest rate
n=number of payments to be made

 

ChristianN and fecurtis, thanks so much for your input. I posted after researching and all the formulas confused me. One common symbol that I saw a lot of was ^. What does ^ represent? I don't really know how to use Excel. I went to Insert --> Function and the closest thing I have is PMT. I am assuming its the same thing...anyways I plug in the numbers my dealer gave me to see if my payments are the same as the guy quoted me and its way off.

 

Are you trying to calculate your total monthly payment or are you trying to figure out what portion of your payment is going toward interest? The PMT function will return your actual payment. If you're trying to get your monthly payment, make sure you input a monthly interest rate. 6.2% interest per year should be entered as (.062/12). (I suspect this is where you went wrong as it is a very common mistake)

Enter the following in Excel to figure out your payment:

=PMT((i/12),nper,-pv,0)

where:

i = annual interest rate expressed as a decimal (6.2% = .062)
nper = total number of payments (eg. 5 years = 60)
pv = original amount of the loan (enter as a negative value or your payment will be negative)
fv = 0 -> this is because at the end of your term the car will be yours and you will not owe them any more money.

Example: You buy a G for $39,000 and pay a down payment of $10,000. You will be borrowing $29,000 and you are offered an interest rate of 5% per year for 5 years.

PMT = ((.05/12),60,-29000,0) = $547.27

"^" denotes an exponent, for example 2^3 is 2 to the power of 3 or 8.

IPMT will tell you how much of a particular payment will be going toward interest and therefore how much toward the principal of the loan.