India is today the fourth largest market for 4-wheelers in the world. The demand for cars from younger consumers is increasing year after year. This dream of buying a car, however, involves taking a car loan for many, which necessitates paying EMIs for the long term.

The basic thumb rule when applying for a car loan is that the EMI should not cross 10% of the monthly income. Using an accurate car loan EMI calculator proves to be useful in this situation for calculating the EMI that you can afford.

These EMI calculators will assist you in making the right decision about how much funding you require for your dream car, the amount of EMI that you would have to pay, and much more.

What is a Car Loan EMI?

A car loan is one of many forms of secured loan obtained from a bank or any other financial organization to purchase a car. It can be seen that having an automobile is a necessity for most people in the present-day world. Your budget is crucial when it comes to selecting the car, the down payment you can make, and the loan you need.

You can repay the amount in equal installments in a fixed number of months or years as mutually agreed upon. If the borrower or debtor fails to repay the loan, they get a low credit score, while the lender repossesses the car to recover their losses.

Car loans are easily available through banks at relatively low interest charges and repayment tenors, without compromising your financial standing. EMI stands for Equated Monthly Installment and consists of two parts – the principal amount and the interest component of the car loan. The EMI would not change throughout the tenure of the loan and was to be paid monthly in installments.

Factors Affecting Your Car Loan EMI

Here are all the factors that affect and have a strong influence on your car loan EMI:

1. Principal Amount

This refers to the original sum of money you are taking from the bank or car loan lender to finance your car. If the principal amount is high, then the EMI will also be high because more money has to be paid back within the tenure of the loan.

2. Interest Rate

The EMI is directly influenced by the interest rate. It is the amount of interest charged for the use of money, usually stated in terms of the number of basis points of the loan sum. Higher interest rates mean that the EMIs are also higher.

Fixed rates do not change during the whole course of the loan period.

Variable rates may fluctuate depending on overall market trends.

3. Loan Tenure

This is the period within which you are expected to make the repayments of the particular loan. Long-term tenure helps in paying lower EMI but in turn, helps you pay more interest to the bank during the loan period. Shorter tenures, on the other hand, mean higher EMIs but lower total interest payable by the borrower.

4. Down Payment

The down payment is the payment you make at the time you are purchasing the car. Larger down payments lead to lower principal balances to be borrowed, resulting in lower EMIs.

5. Credit Score

A credit score is the general summary of your credibility. If the interest rate is reduced due to a higher credit score, then EMI is also lowered.

6. Type of Car

The type of car that you intend to purchase also influences the terms of the loan. If you opt for luxury cars or high-end models, expect to pay a higher interest rate, which will influence your EMI. Usually, interest rates are lower for new cars than for used cars, and this influences your EMI.

How Does Car Loan EMI Work?

EMI Amount = [P x R x (1+R)^N]/[(1+R)^N-1]

In this formula, P, N, and R are the variables.

It implies that the EMI value will be different when you alter any of the three parameters. Now, let me elaborate on these three variables.

• ‘P’ represents the Principal Amount. It is the amount of money you borrowed from the bank initially on which the interest will be charged.
• ‘R’ represents the Rate of Interest charged by the bank.
• N is the number of years stipulated for the repayment of the loan. Since you have to pay the EMIs every month, the period is expressed in the number of months.

Let's consider an example:

For instance, if you would like to borrow ₹5,00,000 as a car loan for 5 years or 60 months, wherein the annual interest rate is 9. 6%.

• P = ₹5,00,000
• R = 9. 6% – 12% ÷ 100 = 0. 008 (monthly interest rate)
• N = 5 years x 12 months = 60 months

EMI = [500000 x 0. 008 x (1 + 0. 008)^60] / [(1 + 0. 008)^60 - 1]

= 4000 x 1. 6122 / 0. 6122

= 6448. 80 / 0. 6122

₹ 10,533 as it is rounded to the nearest rupee.

Thus, to repay the car loan, the EMI would be ₹10,533 per month for 60 months.

This EMI amount comprises the principal portion of the loan and the interest on the outstanding loan amount. Hence in the first months, a greater part of the EMI is utilized for paying interest, and in the later months, a greater part of the EMI is used for repayment of the principal amount.

What is a Car Loan EMI Calculator?

A car loan EMI Calculator helps you figure out how much you will have to pay each month in equal installments to the lender throughout the duration of the loan. Before you enter the bank, you are informed about the required loan amount, interest rate, and car loan monthly installments.

This tool consists of three sliders (Loan Amount, Loan Tenure, and Interest Rate) in a formula box. The car loan EMI Calculator will display the monthly repayment amount to the bank when you enter your information.

Benefits of Car Loan EMI Calculator

Here are all the benefits of the car loan EMI calculator you must know:

• Accurate Monthly Payment Estimates: It assists you in establishing the precise amount you will be required to pay in terms of monthly installments.
• Budget Planning: Understanding your EMI allows for better financial management and evaluating the ability to make payments.
• Loan Comparison: It is simple to compare different loans, and you can change the term or the interest rate of the loan.
• Time-saving: This reduces workload as you do not need to make calculations on your own.
• Scenario Analysis: Down payments, loan amounts, and tenures are flexible to allow the identification of the most suitable solution.

Conclusion

It is essential to know about car loan EMIs to avoid making wrong financial decisions. The lower the EMI, the better it looks, but it is important to look at the interest charged for the entire loan period. Therefore, you should be well-equipped to approach car loans and get the right deal with ease.

There are numerous EMI calculators available on the internet that make it easy to try out different possibilities at the click of a button. IFSC's car loan EMI calculator is one among those that offer accurate results. Use the car EMI calculator now and make informed decisions.