Car Loan EMI (or equated monthly instalment) is a fixed amount of money calculated by the car loan EMI calculator you pay towards repayment of your car loan every month on a fixed day of the month till your loan is fully paid back. The EMI comprises of both principal repayment and interest payment.
For car loans offered at fixed rate of interest, both the EMI and the loan tenure remain constant. The interest component of the EMI keeps reducing and the principal component of the EMI keeps increasing.
For car loans offered at floating rate of interest, the EMI amount as calculated initially by the bank using car loan EMI calculator remains constant but the tenure may either increase or decrease by a few months depending upon movement in interest rates.
EMI Calculator for Car Loan: Factor affecting EMI
Loan amount – Higher the loan amount, higher will be the EMI.
Rate of interest – Lower the interest rate, lower the EMI.
Work profile – Salaried or Self-employed. In case of top rated companies, banks are ready to fund car loan at lower rates thus reducing the EMI burden.
CIBIL Score – Higher the CIBIL Score, more are the chances of getting the car loan at lower rate.
Loan Tenure – Longer the loan tenure, lower the EMI. Longest car loan tenure available across banks in India is 5 years (60 months), subject to borrower’s current age and retirement age. For a car loan at 12.99% interest rate, the EMI per Rs. one lakh loan amount is as below:
EMI amount for loan amount Rs. 1 lakh at 12.99%
Total amount you pay back to the bank including principal and interest
Interest you have to pay over loan tenure
Caution - Note that a car loan of 80% of on road price is likely to be more than 95% of ex showroom price.
EMI in arrears scheme – this is the standard method of paying EMI where the interest for a month (and principal repayment) is payable at or after the end of the month.
Advance EMI scheme – you pay interest and EMI at the beginning of the month. So, each month, you pay interest on amount that you have already repaid to the bank at the beginning of the month.
Caution – In case your bank charges EMI in advance, the EMI amount should be about 1% lower than that in case of EMI in arrears. For those interested in more precise figures, EMI per Rs. one lakh loan amount on a 60 month car loan at 10% rate of interest as per EMI in arrears method comes to Rs. 2125 while that as per EMI in advance method comes to Rs. 2107.
Zero interest car loan scheme (also called 0% finance scheme) – this is one of those free lunches that actually doesn’t exist. So, beware of schemes that claim to offer zero interest. It is likely that the car company is offering a subvention scheme whereby the interest is paid by it to the bank upfront. Now, you could always ask the car dealer for the same amount as a cash discount. It’s like padding up the price of the car for the interest amount and marketing it under a nice name.
Flat rate of interest car loan scheme – in this method, you pay interest on the entire principal amount of car loan till maturity. So, on a Rs. five lakh car loan at 10% for 5 years, you would have to pay back a total of Rs. five lakhs plus interest of Rs. 50,000 a year, that is a sum total of Rs. 750,000. The EMI in this case would be Rs. 12500.
Reducing balance car loan scheme - in this method, you pay interest on the amount outstanding each month. With each EMI, the balance principal amount keeps reducing. So, on a Rs. five lakh loan at 10% for 5 years, you would have to pay back a total of Rs. five lakhs plus interest on reducing basis which comes to Rs. 137411 or Rs. 637411 including principal. The EMI in this case would be Rs. 10624, a good 15% less than that for a flat rate scheme.
Caution – Never get hoodwinked with the low rate of interest offered on a flat rate scheme. A flat rate of 10% is equal to an interest rate of 18.7% on reducing rate basis on a five year car loan.
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