While applying for a loan, the repayment of the debt is the most integral part of all the aspects that are considered by banks and non-banking financing companies (NBFCs) before the funds are disbursed. Opting for a loan that exceeds the repayment capacity of an individual can not only increase the chances of the loan application getting rejected, but also introduces the possibility of defaulting during the repayment of the debt. Therefore, it is crucial for customers to check their EMIs beforehand and choose a plan that suits their requirement, circumstances, and repayment capability.
EMI is the abbreviation for Equated Monthly Installments. When a borrower applies for a loan, he or she has to repay the loan along with an predetermined interest in small amounts distributed throughout the tenure of the repayment. This equal amounts of money that is paid at regular interval towards the loan is known as EMI.
While taking a car loan, the amount of payable EMI is computed using a number of factors. Therefore, it can vary from customer to customer. In order to calculate EMI, the banks and NBFCs take the following variables into account:
The formula to calculate the EMI of your car loan is mentioned below:
E = P x R x (1 + R)^n / ((1 + R)^n – 1)
E is the amount of EMI payable
P is the principal amount of loan
R is the rate of interest
n is the number of installments in which the loan will be repaid
You can calculate your monthly car loan repayment amount using an Excel spreadsheet. In order to compute your monthly installments with the help of Excel, you will have to do use the predefined function PMT. The syntax for this function is:
PMT (rate, nper, pv)
pv is the current or principal loan amount
rate is the fixed interest rate of the loan
nper is the number of installments in which the loan will be repaid
Calculating the EMI of your car loan manually using the above-mentioned formula is a tiresome and challenging task along with being prone to human errors. Therefore, you can use a car loan EMI calculator available online instead, and find out how much money you will have to pay each month. All you will need to do is provide the details of your loan such as the loan amount, repayment tenure, and fixed rate of interest. The EMI calculator will give you the correct output without any hassle. While checking your EMI using an online calculator, you will also have the benefit of adjusting the EMI by changing the parameters. Once you have chosen a plan that suits your requirement and circumstances, you can apply for the loan online or offline through a lender of your choice.
Additionally, the EMI computed using an online car loan emi calculator is subject to change due a number of reasons. When a customer opts for a floating rate of interest, the EMI can increase or decrease depending on the fact whether the interest rate increases or decreases. Prepayment of loan and increase in loan tenure are also some of the reasons that can cause the monthly installment amounts to change. Read further to learn why you should calculate your EMI using a calculator before applying for a car loan.
As part of the loan approval process, banks and NBFCs cross-check the credit history of all borrowers in order to make sure that the candidate does not default with the payment. When you are applying for a loan in order to purchase a car, it becomes your responsibility to repay the entire debt within the predetermined duration. If the debt is not paid back on time, it will impact your credit profile negatively. This, in turn, might affect your loan applications in case you choose to apply for another loan in the future. Mentioned below are the reasons why it is important to use an EMI calculator before applying for a loan:
While there are a number of reasons that can impact the EMI of a car loan, calculating the payable monthly installment of a debt can help customers choose a plan that suits their needs and repayment capacity. This, in turn, helps individuals not only opt for the best scheme available in the market according to their requirement, but also decreases their chances of defaulting while maintaining a good credit history. Furthermore, pre-planning the repayment of a loan can also assist the customers in managing their finances better.