One of the most important considerations when opting for a loan is the actual instalment amount that one needs to pay. In earlier times, the actual instalment amount would become clear after applying

One of the most important considerations when opting for a loan is the actual instalment amount that one needs to pay. In earlier times, the actual instalment amount would become clear after applying for a loan. However, with the digital revolution, lenders display a lot of loan information online on their websites. Among this information is a tool that can help you figure out the loan instalment amount. That tool is called a car loan EMI calculator.

When it comes to a car loan, there is a special type of calculator on many lender websites. A car loan is a secured loan. This means the value of the car loan or the principal amount depends on the on-road price of the car. A car loan EMI calculator in some cases factors in the cost of the car based on the make and model and then calculates the instalment amount.

How does a car loan EMI calculator work?

A car loan calculator is extremely simple to use. It requires three inputs:

Principal amount

Rate of interest

Loan tenure

Once these three inputs have been entered, the calculator automatically displays the instalment amount. Some calculators also show an amortization schedule which shows the breakup between principal repayment and interest payment. This amortization schedule shows the amount of interest paid every year of the loan tenure. The formula for the calculation is not displayed to the user. It automatically gets calculated once the inputs have been entered.

The car loan calculator uses a formula:

EMI = C x R x [(1+R)^N]/[(1+R)^N-1]

Where

C = Loan principal

R = Rate of interest

N = loan tenure in years

The calculator does not display this formula to the user. It automatically and instantly calculates the instalment amount.

The principal amount of a car loan depends on the on-road price of the vehicle. Some car loan calculators ask for the model number and the brand so that it can pull the on-road price of the vehicle and automatically calculate the principal amount based on the loan to value ratio. Other calculators may ask you for the cost price of the car and calculate the principal amount automatically. It is important to remember that a car loan does not cover the entire price of the car. It only covers between 65 per cent to 80 per cent of the on-road price of the vehicle.

It is possible to change these inputs multiple times and check the impact on the instalment amount. This makes the car loan calculator an excellent tool to plan the loan tenure. Opting or a longer loan tenure will lead to a higher interest pay-out over the loan tenure. However, the instalments will be smaller which may make the loan more affordable. On the other handArticle Submission, opting for a shorter loan tenure will mean a higher monthly instalment which can get unaffordable. This sort of loan planning is possible using a car loan EMI calculator.

A calculator is also helpful to find out which loan proposition works out to be better for you in the long run. It can be used to compare loans from different lenders. Some calculators also have an amortisation schedule which shows the breakup of monthly instalment amount into principal outstanding and interest. This can help take a decision about the loan tenure. It can also help compare the different loan options between lenders.