Are you applying for a car loan? Keep the loan tenure in mind. The duration of the car loan affects the EMI. EMI is the Equated Monthly instalments that are paid each month. This impacts the total cost of the car. Knowledge of this relationship will help you plan your finances smartly.
Relationship Between Loan Tenure and EMI:
The formula is:
EMI = [P x R x (1+R)^N] / [(1+R)^N-1]
P is the principal amount
R is the monthly interest rate
N is the monthly loan tenure
The loan tenure or N is directly impacted by the EMI. A short tenure increases the EMI. A longer tenure results in low EMI.
Let us consider a loan of Rs. 5,00,000. The interest rate is 10% p.a.
Loan Tenure & EMI Amount
- 3 years or 36 months – Rs. 16,134
- 5 years or 60 months – Rs. 10,624
- 7 years or 84 months – Rs. 8,301
The above table shows that longer tenures cause low EMIs. The loan becomes more affordable. But longer loan tenure also means more interest payments. It is important to strike a balance between the two.
EMI on Short-Term Loans vs Long Term Loans
When you apply for a car loan online, you need to understand the differences between short-term and long-term loans to help you make an informed decision.
Short Term Car Loan And EMI
- A short term loan has a higher EMI.
- The principal and the interest has to be recovered in a short period.
- A lower overall interest is paid in the long run.
- The loans are repaid faster.
- Most suitable for people with stable incomes and savings.
Long Term Car Loan And EMI
- A long term loan has a lower EMI.
- A higher overall interest is paid in the long run.
- There is an extended loan repayment period.
- Suitable for people with a limited monthly budget.
The Ideal Car Loan Tenure to Minimise EMI
- The best EMI can be decided using the monthly income and expenditure
- Use the EMI calculator to compare tenure options
- Balance low EMIs with the interest payable
- Align the tenure with long-term financial goals
Conclusion
The tenure while you apply for a Car Loan online can impact the EMI. Assess your financial situation. Use the EMI calculator and make smart choices.
