Applying for a two-wheeler loan may seem like the go-to choice when thinking of buying a motorcycle. You can easily derive the monthly payments you would need to make, and that would be the end of it. But believe it or not, this isn’t enough. It is vital to understand the different parts of a bike loan and how they impact your monthly payments. So let’s look closer at how Equated Monthly Instalments (EMIs) and their calculators work.
Understanding How EMI Calculators Work
Equated Monthly Instalments (or EMIs) can be easily calculated using online calculators. These are small but accurate calculator interfaces built into the websites of banks and non-banking financial companies (NBFCs). To calculate your bike loan interest payouts, here are the things you need.
- Principal amount: This principal amount is the on-road price of your motorcycle after deducting the down payment you have paid at the showroom.
- Interest rate: This is the rate of interest on the loan offered to you by the bank or any other lending institution.
- Loan tenure: This is the duration for which you are taking the two-wheeler loan. This tenure can be anywhere from 12 to 60 months.
Once you enter these details into an EMI calculator, it will instantly give you the output, which is the amount of EMI you need to pay each month. Most banks, like IDFC First Bank, have such EMI calculators built into their websites.
EMI Calculation Illustration
The optimal approach to the way an EMI calculator functions is to consider a real-life situation. Consider a case when you intend to buy a bike with on-road price of ₹1,50,000.
When you consider the various bike finances availed by various lending companies, you opt to take one with an interest rate of 10%. Suppose you wish to take this loan in 3 years (36 months).
And now that you have all these information, all you need to do is to enter the information in the appropriate fields of the bike loan EMI calculator. This will automatically result in an output of about ₹3,800 as your monthly EMI.
Other insights such as the total interest to be paid at the expiry of the loan period (36 months), are also available in such EMI calculators. The amount of interest to be paid in the case would be about ₹19,300.
As a result, taking a loan of ₹1,50,000 would result in a final repayment amount of ₹1,69,300. To understand hands-on how this works, you can check out the EMI calculators on website of banks like IDFC First Bank.
Key Benefits of Using an EMI Calculator
Besides getting to know your EMI amount, there are other benefits to using an EMI calculator before going for bike finance options.
- You can exactly match your budget with the amount of EMI you would have to pay each month after purchasing the bike.
- You can adjust the loan tenure to increase or decrease the EMI and interest paid.
- You can have a proper strategy for a down payment, which will reduce your loan principal.
- You can prevent taking on a loan of a higher amount than you actually need. This can also save you from paying extra interest unnecessarily.
Factors Influencing EMI and Interest
Despite having used an EMI calculator to estimate your EMI outflow, there are other factors you need to consider. These are some qualitative factors that no EMI calculator available online can account for.
- Your credit score and loan repayment history can impact the interest rate offered.
- Your employment stability can impact the loan principal you receive.
- Your income level can also impact the loan tenure you have available.
- Your down payment can also impact the loan amount you need to take.
Even if you know the bike loan interest, these factors mentioned above are variables you need to consider.
Final Thoughts
An EMI calculator is an important pre-borrowing analysis tool that allows to plan repayment and predict costs of interests. Efficient use of these tools will guarantee the responsible choice of borrowing and sustainable two-wheeler ownership financing.
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