Why Should You Use an EMI Calculator Before Applying For a Car Loan?
Car loans have made it relatively easy for people across the country to get the funds required to purchase their own vehicle. While car loans are certainly helpful in buying the car of your dreams, they come with their fair share of risks. Once you take a car loan, you will have to ensure that you have enough money to repay the loan over the number of years you choose as your tenure. Failure to repay your EMIs on time, or defaulting on payments, can have an adverse effect on your credit rating, thereby making it harder for you to obtain financing in the future.
It is for this reason that you must use an EMI calculator before applying for a car loan. Using a car loan EMI calculator will help you get a good idea about how much you will be repaying each month over the tenure of the loan. This in turn will help you plan your finances effectively and make sure that neither your loan instalments nor your monthly budget suffers.
What is EMI?
EMI is the short form of Equated Monthly Instalments. It is one of the most common terms you will hear about when it comes to loans, be it home loans, personal loans, or car loans. Every individual who takes any kind of loan will have to repay it in monthly instalments known as EMIs. EMIs are calculated before you take a loan get to know more about car loan Emi , and is an amount that is mutually agreed upon by the lender and the borrower.
EMIs contain the principal loan amount as well as the interest component of the loan. Since interest is levied on a monthly basis, your EMIs will include both the principal amount and the interest. EMI payments are expected to be made on a certain predetermined date each month. It is important to ensure that you make these payments on time either via cheques, net banking, or the auto debit facility as failure to do so will have a negative impact on your credit score.
How does an EMI Calculator Help?
An EMI calculator is basically a tool that helps in calculating your EMIs in a smooth and hassle-free manner. EMI calculators not only display the amount you are supposed to repay, but also show how much of the money goes towards the principal amount of the loan and how much of it goes towards the interest component. They also display an amortization table that helps you understand how your loan will be repaid over the tenure. Most lenders have their own car loan EMI calculators on their websites. You could also use the EMI calculators available on third party websites such as Bankbazaar.com.
How are EMIs computed?
Calculating the EMIs of your car loan is fairly simple. All you have to do is visit the car loan EMI page of your lender or any third party site and enter the required details, which is basically the loan amount, the interest rate applicable to the loan, and the tenure of the loan. In a matter of seconds, the tool will generate your EMIs along with an amortization table that will show the repayment structure of the loan.
By entering these three elements, you can learn what your EMI payments will be.
The calculation of EMIs is done using a mathematical expression when you do it manually or using an Excel sheet. The formula is as follows:
EMI = [P x R x (1+R)^N]/[(1+R)^(N-1)]
Where P is the principal amount, R denotes the interest rate, and N stands for the number of instalments. EMI calculation can also be done using
How does an EMI calculator help?
An EMI calculator can come in very handy at the time of taking a loan. Since you are liable to repay the amount you borrow, and make sure that you do it on time and regularly, an EMI calculator tells you just how much you will have to pay each month. The following are the benefits of using an EMI calculator:
- Financial planning in advance
When you use an EMI calculator before applying for a car loan, it will tell you how much money you will have to pay the lender each month. Knowing how much exactly you need to pay beforehand will help you in budgeting your finances. You will know how much to set aside and how to use your income sparingly to achieve all your financial targets.
- Comparison of various offers
In case you have shortlisted multiple loan offers and are finding it hard to pick one, an EMI calculator will make it easier for you to make an informed decision. EMI calculators also take into considering the processing fees and other charges to help you choose the best option.
- Deciding the principal amount and loan tenure
When using an EMI calculator, you can adjust the principal amount, tenure and interest rates as many times as you like in order to find the EMI that best suits your repayment ability. You can use the facility to not only calculate your EMIs, but also choose your principal amount and the loan tenure with utmost care.
Considering the fact that EMI calculators can be so useful in not only calculating how much you will repay each month, but also in choosing the right tenure and loan amount, it is essential to use one before applying for a car loan. If you are taking a car loan, make sure you compare as many lenders as possible in order to find the one that best suits your requirements.