Buying a two-wheeler is a practical option for individuals who want affordable and convenient transportation. For frequent trips to the office or for small trips for groceries, two-wheelers are economically efficient and convenient to use. If you don’t want to use your savings to purchase a two wheeler, you can opt for a two-wheeler loan. However, understanding the repayment structure and knowing how to calculate your monthly instalment can be helpful. This article explains how to calculate your EMI and factors that must be taken into account.
What is an EMI?
EMI stands for Equated Monthly Instalment. It is the sum that needs to be paid to the lender each month until the entire two wheeler loan is repaid. An EMI includes the applicable monthly interest and a part of the principal amount. Knowing your EMI in advance enables you to manage your finances efficiently.
Important Factors That Influence Your EMI
Before you compute your EMI, you should know the three major factors that influence EMIs:
- Amount of Loan: It is the sum borrowed from the lender to purchase the two wheeler.
- Interest Rate: The percentage at which a lender levies interest on the borrower.
- Loan Tenure: This is the time period within which the borrowers must repay the loan, normally in months.
All three factors directly influence your EMI. Your EMI may be higher if the loan amount and the interest rate are higher. You can lower your EMI with a longer tenure. However, the overall interest paid can be higher.
Calculating with a Two Wheeler Loan EMI Calculator
A two wheeler loan EMI calculator is an online application that helps to calculate the amount of monthly payments. It is easy to use and provides estimated results.
To use the calculator, one has to:
- Specify the amount they would want to borrow.
- Choose the interest rate the lender levies.
- Choose the loan term in months or years.
Once you input these values, the calculator displays the EMI you have to pay, the interest cost paid, and the amount paid over the loan period. It assists you in comparing various loan offers and selecting the favourable one.
Benefits of Using EMI Calculator
Advance planning is necessary when applying for a loan. A two wheeler loan EMI calculator assists you in knowing the overall cost and comparing various offers. Some of its advantages are as follows:
- Immediate Results: No need to perform calculations or apply formulas.
- Custom Planning: You may try out different combinations of loan size and duration.
- Informed Decisions: Helps you understand the impact of the loan on your budget.
- Improved Loan Choice: Allows you to compare various lenders based on the total cost of the loan.
Manual Calculation
Although it is convenient to utilise a two-wheeler loan EMI calculator, one should also understand the formula behind it:
EMI = [P x R x (1+R)^N] / [(1+R)^N – 1]
Where:
- P is the borrowed amount
- R is the monthly interest rate (annual rate divided by 12).
- N represents the loan period in months
This formula is used by all calculators and lenders. Manual computation is, however, complex and prone to errors, especially when interest rates or tenures are variable.
Other Things to Consider While Computing Your EMI
Even though calculators make calculations simpler, there are a number of things that you should consider.
- Check the Processing Charges: These are not included in the Equated Monthly Instalment (EMI) and needs to be paid separately.
- Insurance or Registration fees: These are not always included in the loan and should be paid upfront.
- Keep a Margin: Keep a flexible budget for unexpected expenditure.
Conclusion
Taking a loan to purchase a two-wheeler can provide financial assistance if used efficiently. One of the key points in loan planning is the calculation of your Equated Monthly Instalment (EMI). Using a two wheeler loan EMI calculator, you can calculate the monthly repayment amount, compare different lenders, and make an informed decision. It saves time and also eliminates confusion, and helps in efficiently planning finances. Understanding loan terms and comparing the costs incurred is crucial to finding a suitable loan.
