How to Calculate Car Loan EMI Online? Also check interest Rate you will have to pay

Owning a car is of utmost importance in this age and time. it helps you to juggle between your personal and professional life without having to pause it for public transport. It is safer than a two-wheeler and is worth the investment. Purchasing your dream car has become even simpler with financial institutions offering car loans with competitive interest rates. You can get a car loan not only for purchasing a new car but also a used one. HDFC Bank also offers car loans at interest rates as low as 9.25%. The low-interest rates and attractive offers provided by the bank makes it a popular choice among potential car loan borrowers in India.

Regardless of which loan you opt for, the major aspect of every loan is its repayment. You have to calculate your EMI wisely so that you don’t get submerged in the debt. HDFC Bank even provides the customers with an HDFC car loan EMI calculator to aid in EMI calculation. But before you understand the steps to calculate EMI for a car loan in India, you have to know the factors affecting it.

What are EMIs?

EMI stands for Equated Monthly Instalment. It is the most crucial part of the loan. EMI is the amount you will have to pay every month to repay the loan. It needs to be paid throughout the loan tenure or till you have repaid your entire loan along with its interest. If you have chosen a car loan with a fixed interest rate, then your EMI will remain fixed for the rest of the tenure. Most of the car loans come with fixed interest rates than floating rates.

EMIs comprises of two components: principal and the interest. During the early phases of loan repayment, a larger portion of the EMI is formed by the interest payment. As the loan matures, the interest component reduces and a larger proportion of EMI goes towards principal payment. Therefore, if you ever get a chance to pre-pay your loan, then you must try to do so in the initial phases of the tenure. This decreases your principal and saves you the interest on later payments.

Factors affecting EMI

There are three major factors affecting the monthly repayments. They are the loan amount, interest rate, and tenure.

1. Principal amount

The principal amount is the total amount that you will borrower from the lender. It is directly proportional to the EMI. So if you want to decrease your EMI burden, then you must go for a lower principal amount.

2. Interest rate

The interest rate is the rate at which the principal amount is levied to the borrower. This is also directly proportional to EMI. Therefore, you must choose a lender who offers a low-interest rate.

Lenders decide the rate at which they will offer you the loan based on factors such as the type of car you want to purchase or the loan amount. For example, the interest rate offered to you will be lower is you intend to purchase a luxury car than a compact car. This is because the down payment made in the former case is much larger than the latter. Moreover, the interest rate on loans for purchasing a used car is higher than a new car.

3. Tenure

Tenure is the repayment period within which you are required to repay the loan amount along with its interest. Tenure can range from 1 to 7 years. Unlike the other two factors, tenure is inversely proportional to the EMI. This means that you can reduce your EMI by opting for a longer tenure. However, the total interest payable increases with increase in the tenure. Therefore, you must choose a short tenure as far as possible.

Additional Read: Calculate EMI in Advance for Car Loan

Formula to calculate EMI

You can make use of the car loan EMI calculator to calculate the EMI. But if you wish to understand how the above three factors affect the EMI and its mathematical formula, then here it is:

EMI = {P x R x (1+R) n} / {(1+R) n – 1}
Where;
P is the principal amount,
R is the monthly interest rate,
n is the tenure.

You have to substitute the values into the formula to get the EMI. Note that ‘R’ is expressed in terms of months. You can convert it into a yearly rate by dividing this formula by 12. It is a tedious task to calculate the EMI for very value until you get the desired EMI. You can just circumvent these manual calculations by using the online EMI calculator.

HDFC car loan EMI calculator

To calculate the EMI using this online calculator, all you have to do is input the values of the loan amount, interest rate, and tenure. You can either input it manually or drag the pointer till the desired value against each parameter. You have to then click on submit or the calculator will display the result automatically. The EMI calculator for a car loan in India will also show the pie chart depicting the EMI break-up and amortization table. All this will be done in milliseconds and with perfect accuracy.

Ways to reduce EMI

As mentioned above, you can reduce your EMI by selecting a lesser loan amount, lower interest rate, and longer tenure. You don’t have much choice while deciding the loan amount as it cannot go lower than 70% of your car’s market price. Choosing a longer tenure increases the total interest payable. So the only way you can reduce your EMI is by choosing a lower interest rate.

The best way to reduce the interest rate is by having a good credit score. You stand a chance of being offered a lower interest rate and higher loan amount if you boast a credit score that is equal to or above 750. This is because a good credit score reflects your trustworthiness and repayment capacity. If you have a credit score lower than 750, then it is a good idea to wait for it till it improves to apply for a loan.

Author Since: Jan 17, 2019

Anoop Bansal, a professional Chartered Accountant based in the National Capital - Delhi. I have worked for the top-notch Indian and International banking firms for the past 10 years. Currently, I work at emi-calculator.loan blog and a financial consultant for different SMEs in India. Follow me on Facebook, Twitter and Linkedin for more information.

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