The ease and convenience of availability of finance has made life easier for the common man. Buying a car is no more restricted to those who can afford luxury. Car is no longer considered a luxury but a necessity. Almost anyone with a good credit history and decent regular income can now purchase a car as per his budget and liking by taking a car loan and repaying the loan through EMI. EMI or an Equated Monthly Instalment is the amount you as loan borrower will have to pay every month to the lender of the loan which can be any NBFC or Bank. The concept of EMI is very beneficial to the borrower as it allows you to make part payments and saves the burden of huge cash outflow at one go without disturbing your monthly expenses dramatically. As one can repay the loan in instalments a large section of the society can now own a car through the ease of repaying the loan through EMI. Before we go into the calculation of EMI, let us first understand the concept of EMI.
What is an EMI?
EMI is nothing but monthly payment that you need to make to repay the loan. The calculation of EMI is on the basis of principal amount borrowed and tenure of the loan. If you take a loan for a longer term then the EMI per month would be lower but if you take a loan for a lesser tenure than EMI per month will be higher as you have to repay the loan in lesser time. However, lower EMIs over longer terms also mean higher amount paid as the interest rate is paid for a longer duration.
The EMI of a car loan, like any other loan is a sum of two elements the principal amount and the interest amount. The weight age of the interest component is higher at the beginning of the tenure and as the term goes on decreasing the interest component goes on decreasing and amount paid towards principal goes on increasing.
How is car loan EMI calculated?
Simply put EMI is arrived at by calculating adding up the principal amount borrowed to the interest accumulated and dividing it by the number of months in which you are willing to repay the loan. You can calculate the EMI yourself by using the mathematical formula or by using the PMT function in excel or buy using an EMI calculator online.
If you calculate the EMI using the mathematical formula then you have to do the following calculation:
EMI= [(loan amount*rate of interest*(1+rate of interest)^tenure of loan in months]/[1+rate of interest)^(tenure of loan in month-1)].
To calculate the EMI on excel one has to use the PMT (rate, nper, pv) syntax, where rate is the rate of interest; nper is total number of instalments and pv is the loan amount.
However, one can avoid all these calculations and simply use the EMI calculator for car loan. You can use the EMI calculator for purchase of old or new car. EMI is an extremely useful and handy tool as it gives you instant results and you can compare loans available at different interest rates for different tenures and accordingly you can decide on your car loan as per your monthly repayment capacity and financial income.
To use the EMI calculator for your car loan, you will need to enter the following details in the EMI calculator
Loan amount:
The amount of loan you intend to take for your car after making the down payment. The amount of loan that you will take depends upon the cost of the car you intend to buy and how much down payment you are willing to make. The EMI will be higher each month if the loan amount is high.
Term of the loan:
Term of the loan or tenure is the total repayment time for the loan. The tenure of the loan is dependent on the time frame in which you feel you are comfortable paying the loan. For a car loan the maximum term is 5 years and if you are unable to repay your loan in a period of 5 years. If you are unable to repay the loan in 5 years then the ownership of the vehicle is transferred to the lender who can auction it to recover the balance amount of the loan.
Interest Rate:
Interest rate is the rate charged by the lender on the amount when you borrow the loan. The interest rate also varies from one lender to another. This is where car loan EMI calculator is extremely useful as it helps you compare the EMI from different lenders instantly.
Once you enter all these details in the EMI calculator for car loan online it gives you the desired output along with the calculation for each month.
Advantages of Using EMI calculator for Car Loan:
Easy Access
EMI calculator can be accessed by anyone online and you can use it to calculate EMI as per your convenience.
No Chance of errors in calculation
The chances of errors in calculation are higher if you do it by yourself. EMI calculator gives accurate results without any errors and hence it is a better option.
Saves time and the hassle of complex calculations
You can compare the loans being offered by different banks by using the EMI calculator online and save time as all the calculations are done in few seconds so you compare the various offers as you do not have to calculate them yourself.
Helps in Financial Planning
Using an EMI calculator for car loan helps you keep a check on your finances before you take up a loan that would not disturb your monthly budget.
Thus, you can easily workout the EMI of your car loan using the EMI calculator online.
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