Best Method to Calculate EMI on Used Car Loan
Last Modified: 18-January-2023
What is a Used Car Loan?
A used car loan is a loan offered by banks and NBFCs for pre-owned automobiles. Pre-owned products are those owned previously but now are in the market again to find a new owner. The most important benefit of buying a pre-owned car is buying the car of your dreams without hurting your budget.
What are the Factors that May Affect the Interest Rate?
The interest rate is assigned to a loan based on the risk associated with it. If the financiers identify that the loan amount is at a high risk of not getting repaid, the interest rate shoots up. Many factors may attack the interest rate on your used car loan. To secure the lowest used car loan interest rate, we suggest you keep the following factors in mind:
- Source of income: A stable monthly source of income is an indicator of the loan amount coming back in full to the lender. If you can prove that you have a stable and regular inflow of money, chances are you will readily qualify for the loan and may also be able to secure a lower interest rate. For used car loans, Muthoot Capital lists that a company-employed borrower should have a minimum net salary of Rs 15,000/- per month while a self-employed borrower should have a net annual profit of Rs 1,50,000/-.
- Credit Score: Having a good credit score almost guarantees that you will quickly get approved for a loan and that too at a lower interest rate. A credit score is an indicator of how well you manage your debt. A credit score of 750 and above will speed up the loan approval and disbursement process. To maintain a good credit score, ensure that your credit card scores and loan EMIs are paid on time.
- Availability of all documents: To secure a loan, the lender required a few document proofs to verify and ascertain the risk associated. You must produce all the required proof to prove that money being lent to you is low risk. Failing to do so drives up the interest rate. The documents you may need to submit include proof of identity, income, proof of address, etc.
- Down Payment: To get a lower interest rate, quicker approvals, and low EMIs, Muthoot Capital suggests making a 20% down payment of the Insurance Declared Value. Making a down payment makes the EMI much more manageable as you have to repay a lower loan amount.
What is EMI, and How to Calculate it?
EMI is short for Equated Monthly Installment. It is the minimum fixed amount that you need to monthly pay the lender in the process of repaying the loan. EMIs are part payments made to repay the loan you have taken. EMIs take into consideration both the principal amount and the interest incurred.
To calculate your interest with a used car loan EMI calculator, you need to know the principal amount, interest rate, and the period for which the loan is being taken. You will then need to divide the total loan repayment amount by the number of months in the loan period.
T0 calculate EMI for used car loan EMI, which is equal to the principal loan amount + the used car loan interest, is [P x R x (1+R)^N]/[(1+R)^N-1],
P stands for the principal amount
R stands for Interest
N stands for the Loan Tenure.
Let’s illustrate this will a simple example:
- Loan amount(P): Rs 2,00,000/
- Interest rate (R): 10%
- Time period(T): 5 years (60 months)
- Total repayment amount = Loan amount + interest incurred (P*R*T/100) = Rs 3,00,000
- (the There is to be put in years)
- EMI = Total repayment amount/time period in months = Rs 5000
To sum up, if you take a 2 Lakh rupees loan on an interest rate of 10% with a repayment time of 5 years, you will need to pay Rs 5000 in monthly installments. However, if all the calculations get too overwhelming, you can use the used car loan EMI calculator offered by Muthoot Capital on our website.
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