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A car loan is a magic wand that allows you to own your dream car without burning a big hole in your pocket. While there is no dearth of options for car loans, there is a general confusion when it comes to the EMI calculation. We recommend that you check your EMI before you opt for a car loan. Don’t worry, it is not as complicated as it sounds. Most banks have an automated car loan EMI calculator which helps you to see your monthly outflow in just a click. Know more about the car loans in India and how an EMI calculator exactly works.
Cars have always been a prized possession for Indians, but in today’s fast paced life, it has become quite a necessity. Whether it is metro cities or small towns, four-wheelers are an indispensable part of Indian families. A growing economy and increase in disposable income have fuelled the demand for passenger vehicles in the country. Not just small cars but larger ones like Sedans, Multi Utility Vehicles or Special Utility Vehicles are also in huge demand by most Indians. For some, car is a passion, for some it is a prestige factor, while for others it is an essential asset.
Thousands of people throng car expos in their cities, visit online car portals or keep constant tab on the latest launches from their favourite auto makers. Finalizing a dream car isn’t easier. “How much mileage does it offer?”, “What is the maintenance cost?”, “Where is the nearest authorized repair shop?” are some of the questions always playing on a potential car owner’s mind. In this digital age, a buyer can access unlimited reviews shared on various websites and apps. How can we forget social media as a decision maker? There are car experts and influencers on Facebook, Twitter and You Tube to help you make the right choice.
However, not everyone has enough funds required to buy a car. Also, many do not wish to invest a huge amount upfront even if they have the resources. This is why car loan remains a popular option to finance a car purchase.
Just like any other loan, a car loan means taking a certain amount from a banking on non-banking finance entity and repaying it over a pre-determined tenure. This amount helps you to pay the purchase price of the car to the dealer. As a common practise, the lender enters into a mutual agreement with you wherein you have to service the loan by repaying a fixed amount every month. This amount is known as EMI or Equated Monthly Instalment. The EMI includes the principal amount as well as the interest component. Different banks charge different interest rates for car loans. There is a benchmark rate to which the interest rate is pegged, hence the variations in rates across banks is not significant.
The EMI is a fixed payment, but the amount of principal and interest payment varies throughout the terms of the loan. In the initial stages, the interest amount forms the major chunk. As the loan keeps getting paid off, the interest component reduces and the principal amount forms the larger portion. This continues until the entire is paid off.
Apart from the EMI, there are various other charges associated with the loan, such as processing fees, documentation charges, loan cancellation/re-booking charges, pre-payment charges etc. When deciding on a car loan, you need to check all these factors as well. You should approach a particular bank for loan only after thorough comparison across various loan providers.
To make decision-making easier for you, most banks offer a car loan EMI calculator. This is one of the easiest tools to calculate your monthly outgo in a jiffy.
An EMI Calculator is an online tool which automatically calculates the amount of your Equated Monthly Instalment (EMI). This EMI calculator is common for all loans such as Car Loan, Home Loan or Personal Loan. All you need to do is to enter your principal amount, choose an interest rate and your preferred tenure, and viola! your EMI is calculated. Car loan EMI calculator also allows you to change your inputs and compare EMI based on different interest rates or tenures.
Most Car Loan EMI calculators require inputs on certain parameters such as:
Once you provide these inputs, the car loan EMI calculator gives you the exact EMI amount. Not just this, a car loan EMI calculator also lets you know about the break-up of the EMI which includes interest payment, principal amount and other charges like the processing fees etc.
Principal or Loan amount: This is the core cost of the car that you have chosen to purchase. Car prices in India start from Rs 3 lakhs and go upto Crores. Branded SUVs with more features start from Rs 8 lakhs, while the luxury brands like Land Rover, Audi, BMW and Volvo are priced somewhere near Crores. The higher the cost of car, the higher will be the EMI
Tenure: This the duration throughout which the loan is serviced. The shorter the tenure, the more will the EMI payment, but the interest rate will be lesser. If the tenure is longer, the EMIs are lesser, but the interest rate levied is on the higher side. Based on these factors, you can choose a suitable loan for yourself.
Interest rate: This is one of the most important factors that impact the EMI calculation. Multiple banks charge varied interest rates but it is within a specified range. Interest rate can be fixed or floating. In a fixed interest rate, you need to pay the same interest for the entire tenure. In a floating case, the interest rate varies according to the economic conditions. Interest rate payment a major part of the EMI, so choose wisely.
While the price of the car or the interest rate of the car loan are definitely the important factors that determine which loan you must opt for, there are other factors at play as well. You must have a look at your income levels and ensure that your debt-to-income ratio doesn’t exceed 30%-50%. This ratio will enable you to repay your loan with ease.
Another very important factor is your credit score. This is a score given by the credit bureau based on three main parameters: (1) Pattern in which you have handled your previous loans (2) Other loans availed by you currently and (3) Your financial standing. A good credit score can help you to negotiate better car loan terms with a lender. If you have a credit score above 700, you can avail a loan with lower interest rate and save a lot of money every month.
CreditMantri has a credible EMI calculator which can be help you while availing all kinds of loans from leading lenders in India. This calculator is simple and can be used by just entering details like the loan amount, interest rate and tenure.
Once you know the EMI amount, you have a clear idea as to what would be your total monthly outflow will be. This makes it easier for you to plan your expenses accordingly. If you have a good credit score, you will be entitled to better loan terms and save a substantial amount every month.
If this car loan is your first loan, ensure your creditworthiness before approaching the lenders. It is quite possible that the loan though attractive, is not suitable to your credit profile. So, what are you waiting for? Start right away by creating your credit profile at CreditMantri.
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