Car Loan EMI Calculator: A Comprehensive Guide

Nowadays, it is easy to purchase a new car thanks to several car loan plans offered by various lenders. A car loan is usually organised as an instalment loan with the four-wheeler pledged as collateral security. Banks and other financial institutions offer car loans at attractive interest rates for a maximum repayment period of 7-8 years.

The best part is that various third-party and bank websites offer a car loan EMI calculator, which brings the Equated Monthly Instalments (EMIs) calculation to your fingertips. Requiring only a few basic details for EMI calculation, Stable money’s car loan EMI calculator is not only easy to use, but is also free.

What is a Car Loan EMI calculator?

A car loan EMI calculator calculates the EMI to be paid on a car loan based on the information entered by the user. Basic details like the interest rate, loan amount, and repayment tenure must be entered into the tool to determine the EMI amount payable by the borrower.

The interest rate is expressed as a percentage of the loan charged by the lender. The repayment tenure is the period allotted or chosen to repay the car loan with interest. In addition to the EMI amount, a car loan EMI calculator also provides a break-up of the interest and principal amount due, thereby providing the total borrowing cost.

Why should you use a car loan EMI calculator?

Calculating car loan EMI manually using a complex mathematical formula can be a challenging task. On the contrary, a car loan EMI calculator provides the EMI amount in a few minutes.

A car loan EMI calculator can further help you in the following ways:

• The online EMI calculator can be used to determine your monthly instalments towards your car loan. It also provides a loan repayment table with all necessary information like the interest amount paid, the principal amount and the outstanding balance post-instalment payment.
• As the amounts are calculated digitally, they are reliable and accurate.
• As the calculator provides the exact EMI amount, it can help determine your monthly budget and affordability.
• The calculator facilitates the comparison of multiple loan options.
• Almost all calculators offer graphical representations along with a break-up of the interest and principal amounts

The mathematical formula used for calculating a car loan EMI is:

EMI = P x R x (1+R) ^T/ [(1+R) ^T-1] Here,

• “P” refers to the principal amount
• “R” refers to the rate of interest applicable on your car loan
• “T” refers to the tenure or number of instalments (in months).

For example, let’s assume that you borrow a car loan of Rs.8 Lakhs (P) at an interest rate of 10% p.a. (R) for a total tenure of 6 years (72 months) (T). Using the above formula, your EMI amount will be Rs.14,821.

The total amount payable at the end of the repayment period is Rs.14,821 x 72 or Rs.10,67,112. Out of this, the interest payable is Rs.2,67,112.

Floating rate vs fixed rate of interest

Rate of interest for car loans are of 2 types: fixed rate and floating rate. The fixed rate remains unchanged during the loan repayment period, but the floating rate may vary from time to time based on fluctuations in the financial market.

No matter which one of these you select, the rates of interest will differ from lender to lender. Let’s understand the difference between these rates with an example.

Fixed-rate car loan EMI calculation

• Under the fixed interest rate, the EMI payable remains the same throughout the loan repayment period. This is because the lender offered a fixed interest rate for the entire loan tenure.
• As an example, if you borrow a car loan of Rs.6 lakhs at an interest of 8% p.a. for a tenure of 2 years, the amount of EMI payable comes to Rs.27,136 per month. This will be the amount payable throughout the loan repayment period.

Floating rate car loan EMI calculation

• Under the floating interest rate, the EMI you are liable to pay varies depending on the interest rate applicable during that period. The interest rate varies depending on the lending rate prevailing in the market.
• For example, let’s assume you borrow a car loan of Rs.6 lakhs for a tenure of 2 years. The rate of interest for the first year is 8%. So the EMI payable, as in the above example, will be Rs.27,136.
  After the 1st year, there will be an outstanding balance of Rs.3,11,954. At that time, the rate of interest for the car loan is changed to 12%. And for the remaining tenure, the EMI amount payable will be Rs.27,717.

Factors that affect car loan interest rates

Several factors affect the rate of interest on car loans. Let’s take a look at them.

1. Age of the car

The vehicle’s age is an essential aspect that influences the car loan interest rate. If the car is used, the interest rates will be higher. On the contrary, if it is a brand-new car, the interest rates will be relatively lower.

The older the vehicle’s age, the higher the interest rate.

2. Credit score

A credit score is a 3-digit number that represents a person’s creditworthiness. The score ranges from 300 to 900, and the nearer the score is to 900, the stronger it is.

An individual having a score of 750 and above can easily get his loan application approved by any financial institution.

Most lenders consider credit scores while deciding the interest rate for car loan applications. Those with low scores are charged higher interest rates, while applications with high scores have to pay lower interest.

So individuals must try to achieve good credit ratings as it will benefit them while applying for a car loan.

3. Debt-To-Income Ratio

The debt-to-income ratio measures an individual’s capacity to handle debt repayments. With the help of this ratio, financial institutions evaluate the amount of additional debt an applicant’s financial condition will be able to manage.

Lenders give higher preference to applicants with a low DTI ratio. Such individuals also receive the advantage of low-interest rates applicable on car loans.

Car loan EMI amortisation schedule

A car loan EMI comprises two components, interest and principal. The amortisation schedule gives a break-up of the EMI amount. It shows how much amount goes towards the payment of the principal amount and how much is charged as interest.

In other words, an amortisation schedule is a table of monthly loan payments, including the principal and interest amount in every payment till the car loan is repaid completely. The periodic payment is fixed but is made up of components that vary over time.

An amortisation schedule is very useful for financial institutions and banks to maintain a record of the loans. The table below is an example of the amortisation schedule for a car loan of Rs.6 Lakhs at an interest rate of 8% for a loan tenure of 3 years.

The interest and principal components will decrease and increase respectively and proportionately for the entire loan repayment period.

How to use a car loan EMI calculator?

Using an online car loan EMI calculator is simple, as long as you’re careful with the details you input into the tool. Keep in mind that the loan amount can be significant, usually in lakhs, so pay attention to the details while entering them.

The loan amount and the term are essential numbers. Higher the loan amount, higher the EMI. Also, lesser the term, greater the EMI and vice-versa. These numbers can be changed to get a convenient figure.

A step-by-step guide to using an online car loan EMI calculator is given below:

• Start by entering the loan amount.
• Next, enter the loan repayment period.
• Now, enter the interest rate.
• Tap on “Calculate”, and the results or returns will be displayed instantly.

The car loan EMI calculator provides the interest and principal amount payable each year, along with the outstanding balance at the end of each year.

What is car loan prepayment?

When you borrow a car loan, you receive a certain amount of money at a specified rate of interest for a fixed loan tenure. Suppose you decide to pay the outstanding loan balance in one go during the repayment period; it will be termed as prepayment of your car loan.

Importance of a car loan EMI calculator

You may wonder why you should use an online car loan EMI calculator when the lender performs all the calculations anyway.

Firstly, there are several car loan providers in the market offering loans at competitive rates. You can identify the ideal deal by using the car loan calculators of varied lenders. The most important advantage of a car loan EMI calculator is that it enables you to decide your car finance expectations even before you begin the process.

There can be a huge difference between loan providers concerning interest rates. While you can’t alter the rate of interest of a particular lender, you can choose the lender with the the most optimal rate.

Conclusion

To sum up, a car loan EMI calculator can be extremely useful for all prospective borrowers From knowing your EMI in advance to comparing the EMIs of various car models and brands, you can do it all with the help of a car loan EMI calculator.

By using the calculator, you can have an upper hand over the lender and grab the best deal at the lowest interest rate.

So, if you’re planning to purchase a car on loan, your first step should be to try out the car loan EMI calculator of different lenders. Access these calculators, and you’ll know how beneficial they can be in providing you with the required information for your car purchase.