Car Loan EMI: What is it?
A car loan is a type of loan you get from a bank or financial institution to buy a car.
Nowadays, owning a car is almost a must in our fast-paced world. You have the option to choose between a new car or a used one, depending on your budget.
Your budget is important in deciding which car you can afford and how much you need to borrow as a loan.
You can pay back the loan in monthly installments that are easy for you to afford.
If you don’t pay back the loan, your credit score will go down, and the lender might take away the car to cover their loss.
Banks offer car loans at reasonable interest rates and loan terms that won’t strain your budget.
The car loan installment consists of two parts: the principal amount and the interest.
The installment amount stays the same throughout the loan period and you pay it every month.
What is a Car Loan EMI Calculator
The Car Loan EMI Calculator is a helpful tool that tells you how much you need to pay the lender every month for the car loan.
You can use this tool before going to the bank to find out the loan amount, interest rate, and monthly installments for the entire loan duration.
The calculator has three sliders: Loan Amount, Loan Tenure, and Interest Rate. Once you provide these details, the Car Loan EMI Calculator will show you the monthly repayment amount to the bank.
Benefits of using the Car Loan EMI Calculator
EMI Calculator is a simple and convenient tool. You just need to enter the loan amount, loan duration in months, and the interest rate.
It will provide you with a clear picture of the monthly installments you will have to pay for your car loan. This helps you organize your finances before applying for the loan.
The Car Loan EMI Calculator gives you instant results, saving you from complex manual calculations.
One of the main advantages of using a Car Loan EMI Calculator is that it helps you decide the loan tenure for your repayments.
Choosing a shorter duration enables you to pay off the car loan more quickly, although the monthly installments will be higher.
This helps you save on interest payments. On the other hand, opting for a longer tenure reduces the monthly installments but increases the total amount of interest you will have to pay.
How does Car loan EMI Calculator formula work?
You can use a mathematical formula to calculate the EMI amount for your car loan.
The formula is: EMI Amount = [P x R x (1+R)^N]/[(1+R)^N-1]. Here, ‘P’, ‘R’, and ‘N’ are the variables. Changing any of these variables will affect the EMI value.
Let’s take a closer look at these variables.
‘P’ represents the Principal Amount, which is the original loan amount given to you by the bank. The interest will be calculated based on this amount.
‘R’ stands for the Rate of Interest set by the bank.
‘N’ refers to the number of years given for repaying the loan. Since you have to pay the EMIs each month, the duration is calculated in terms of the number of months.
For example, if you take a car loan of Rs 10 lakh with an interest rate of 12%, the approximate EMI can be calculated as follows:
P = Rs 10,00,000, R = 12/100/12 (converted to months), N = 2 years or 24 months.
Using the formula, EMI = [10,00,000 x 12/100/12 x (1+12/100/12)^24] / [(1+12/100/12)^24-1]
The calculated EMI amount would be Rs 47,073.
Factors Affecting Car Loan EMI
Several factors influence the calculation of car loan EMIs. The EMI depends on the principal amount, loan duration, and interest rate.
Any changes in these variables can affect the EMI amount. Other factors that can affect the car loan EMI include:
- Employment category (salaried, self-employed professional, or businessman)
- Income level
- Age group
- Loan duration
- New or used cars
- Car loan scheme
- Car loan applicant
- Having an account with the bank
- The loan eligibility also depends on the value of the car you choose.