Owning a car of your own is no longer a dream for most Indians. With banks, non-banking financial institutions (NBFIs) , and even car de...
Owning a car of your own is no longer a dream for most Indians. With banks, non-banking financial institutions (NBFIs), and even car dealerships offering car loans on very attractive terms, a car is very much within the reach of the majority of people in India today. If you yearn to have a car of your own, or even maybe a second car, but don’t have the entire amount saved up, all you have to do is apply for a car loan and you are on your way to driving your car home in just a few days.
Things to keep in mind when applying for a car loan
The internet is the place to go to if you want to get a car loan in a quick, paperless, and smooth manner. Almost all banks and NBFIs have their own websites today where you will get the latest information about the car loans that they offer. You could also visit online financial portals or car loan aggregator sites, such as BankBazaar, where you can get a detailed, up-to-date, and comparative analysis of the best car loans and car loan EMI.By doing this, you will be able to take a better decision regarding which car loan is best suited to your budget and requirements. This will also ensure that you are in a position to make timely payments towards your loan without any defaults. Defaulting on your car loan will bring down your credit score, which could adversely affect your ability to get loan approval in the future. Defaulting on payments, if done on a regular basis, could also result in your car being seized by the lender since car loans use the car as collateral. One of the main causes of defaults in paying EMIs is the miscalculation of how much you can actually afford to pay every month. So, how do you avoid this trap and ensure that you correctly assess how much of an EMI you can afford? That’s where car loan calculators come into the picture. But first, let’s understand what is an EMI.
What is an EMI?
EMIs are the fixed monthly payments that you, as a car loan borrower, will pay to the lender. This is usually done on a specified date every month. EMIs cover both the principal amount and the interest until the entire loan amount is paid off by the end of the loan tenure. An easy way to understand how much EMI you will be paying on your car loan is to use an online car loan calculator.What are the benefits of using car loan calculators?
Car loan calculators are simple online tools (that are often free to use) which give you a clear picture of what your Equated Monthly Installment (EMI) will be for your car loan. Most EMI calculators have an easy-to-use interface. There are different categories with sliders for each where you can adjust the figure for the loan, interest rate, loan tenure, etc. Once these parameters are set, you will get a summary of what your loan EMI, total interest payable, and total payment (principal + interest) will be.Example of EMI calculation for a car loan of Rs.5 lakh
Using one of the online car loan calculators, let’s calculate how much EMI you would have to pay if you were applying for a car loan of Rs.5 lakh. Please keep in mind that interest rates vary from lender to lender. Let’s take an interest rate of 8% p.a. and a maximum loan tenure of 7 years for this. Here is the amortization table for this amount for EMI payments that starts in March 2019 and ends in 2026:| Year | Principal(A)(Rs.) | Interest(B)(Rs.) | Total Payment (A + B)(Rs.) |
Balance (Rs.) |
Loan Paid To Date |
| 2019 | 45,960 | 31,971 | 77,931 | 4,54,040 | 9.19% |
| 2020 | 59,338 | 34,179 | 93,517 | 3,94,702 | 21.06% |
| 2021 | 64,264 | 29,254 | 93,517 | 3,30,438 | 33.91% |
| 2022 | 69,597 | 23,920 | 93,517 | 2,60,841 | 47.83% |
| 2023 | 75,374 | 18,143 | 93,517 | 1,85,467 | 62.91% |
| 2024 | 81,630 | 11,887 | 93,517 | 1,03,837 | 79.23% |
| 2025 | 88,405 | 5,112 | 93,517 | 15,432 | 96.91% |
| 2026 | 15,432 | 154 | 15,586 | 0 | 100.00% |
How is the EMI calculated?
The formula for calculating the EMI is as follows:EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
P: Principal loan amount
R: Compounded interest rate that is applicable for your loan
N: Loan tenure
Factors that affect EMI
Your EMI can also be affected by other factors such as your age, credit score, employment, financial statement, income statement, financial liabilities, etc.When you use online car loan calculators, you will get a clear picture of exactly how much you will be paying monthly and yearly, which will help you budget your expenses better. Knowing this before applying for a car loan helps you apply for an amount that you can comfortably pay off every month without any stress.
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