How does car loan tenure affect EMI calculation?

When it comes to calculating your EMIs (Equal Monthly Instalments), understanding the tenure of your car loan is a crucial step. Carefully planning your loan's repayment will ensure that your monthly instalments are paid off on time.

Read the following article for tips on choosing the right car loan tenure.

Importance of car loan tenure

It's imperative to consider the loan tenure as you prepare to purchase your desired car with a car loan. In addition to affecting your ability to repay your car loan, it also impacts your future expenses. EMIs are higher with a shorter tenure, but you'll pay less interest and pay off the loan faster. On the other hand, if you choose a longer tenure, the EMIs will be more affordable, but the interest payment will increase.

Let's say you secure a ₹10 lakh car loan at an 8.5% interest rate. With a four-year tenure, your monthly EMI would be ₹24,000. However, if you extend the tenure to eight years, your EMI reduces to ₹14,000. Keep in mind that the total interest paid in the first scenario would amount to ₹1.83 lakhs, while the latter option would cost you ₹3.81 lakhs in interest.

How can car loan tenure help calculate the EMI?
 

Here's how to calculate the EMI for a car loan using its tenure and interest rate. Use the following formula to calculate this value:

EMI = [P*R*(1+R)^N]/[(1+R)^N-1]

where P is the principal amount, R is the car loan interest rate, and N is the car loan tenure. If you avail a car loan worth ₹5 lakhs from a bank at an interest rate of 7.2% for 3 years, the EMI would be:

EMI = [5,00,000 * 7.2/100/12 * (1+7.2/100/12)^36] / [(1+7.2/100/12)^36-1]

EMI = ₹15,484

As the calculation clearly shows, your EMI in this scenario will be ₹15,484. However, you need not manually calculate the EMI of your car loan while researching online. You can use a car loan EMI calculator.

Steps to know the ideal tenure for your car loan
 

1. Know your preferred car loan type
 

Car loans are of three types - new car loans, used card loans, and loans against cars. IDFC FIRST Bank offers competitive interest rates for car loans and borrowers can opt for a repayment tenure of up to 10 years. Borrowers can opt for used car loans if they want to buy pre-owned vehicles less than 5 years old. When it comes to loans against cars, these loans can be availed of by pledging a currently-owned vehicle as collateral.  

2. Choose a car loan online
 

Once you've chosen a category, it's time to compare interest rates and cherry-pick your perfect car loan online. To find the ideal tenure, narrow down your options to those offering extended car loan tenures (up to 8-10 years).

3. Use a car loan EMI calculator to know your tenure
 

Finally, waltz your way to the perfect car loan tenure using a handy car loan EMI calculator. Experiment by entering different values in the 'loan tenure' field and observing the EMI fluctuations for various car loan tenures. Shorter tenures result in higher EMIs but lower interest payments, while longer tenures offer lower EMIs at the expense of increased interest costs. Use this insight to strike the right balance between financial preference and loan repayment ability.

You can ease your loan repayment journey by going through the above-mentioned handy tips before applying for a car loan.

Disclaimer

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