If you are planning to buy a bike of your dreams but are short of funds, then the two-wheeler loan is a good option to get the bike of your choice. All you have to do is arrange a small down payment and the rest of the loan amount can be paid in Equated Monthly Installments popularly known as EMIs. You can choose your EMI plan as per your requirement by carefully planning the monthly budget so that it doesn’t put a strain on your finances.
Once you decide to take a two-wheeler loan, it is important that you calculate the EMI which has to be paid every month. This calculation helps you in determining the exact amount you have to pay for a particular duration. It will give you a clear picture of the monthly expenditure you need to make to pay off the bike loan. It is a convenient way of managing your finances effectively without burning a hole in your pocket.
Factors Affecting Two-Wheeler Loan Interest Rate
Well, one factor that obviously affects the two-wheeler loan interest rate is competition between lenders such as banks, NBFCs, and online lenders. In addition to industry competition, other factors that affect the interest rate of loans are:
Principal Amount
Credit Score
Tenure of the Loan
Financial Statement
Type of Employment
Age
Current Income
Repayment Schedule
Existing Liabilities
What is a Loan Amortization Schedule?
IIn order to calculate two-wheeler loan EMI, you will need to know what is a loan amortization schedule. The loan amortization schedule is a tabular representation that gives a break up between the interest component and principal component of a particular EMI payment. This schedule helps in understanding how are you going to pay the loan and how much balance is left as an outstanding principal. At any point in time, if you want to foreclose the loan, this schedule is of great help as it contains information like the time period of payment, EMI, interest, principal payment, and the outstanding loan.
How is EMI Calculated?
It is better to calculate the two-wheeler loan EMI before availing the loan because it will make a rough image in your mind about the monthly installment you have to pay and moreover you will get to know that whether you can repay the loan on time or not. Thus, you plan your monthly expenses according to the EMI. You can either use an online calculator or a mathematic formula to calculate EMI.
Calculating EMI using a Bike Loan Calculator
A two wheeler loan calculator tells you the amount of EMI you would have to pay for that particular interest rate. It also shows the amount of interest you will be paying for that specific amount in the given tenure.
Two-wheeler loan EMI calculator calculates your EMI in three easy steps:
First of all, fill the value of two-wheeler loan amount you would like to borrow.
Enter the two-wheeler loan interest rate that bank offers you.
Last but not the least; insert the number of months for which you want to take a bike loan and then press Calculate EMI.
Calculating EMI using a Mathematic Formula
If you do not have access to the internet and are unable to use the online calculator, it is always in the best interest that you know the mathematic formula for calculating the two-wheeler loan EMI.
To calculate the exact EMI, you will need to know the following aspects:
The loan amount that you want to borrow from the bank.
The annual interest rate that will be charged by the bank or lender.
The term or duration of the loan expressed in a number of years.
Considering the above-mentioned factors, the EMI is directly proportional to the loan amount and interest rates; and is inversely proportional to the tenure of the loan. The higher the loan amount or annual interest rate, the higher is the EMI and vice versa. In the case of the loan tenure, the EMI decreases with the increase in tenure.
The mathematical formula to calculate two-wheeler loan EMI is:
EMI = P × R × (1 + R)^N/{(1 + R)^N1}
where,
P stands for the loan amount or principal
R is the interest rate per month and
N is the number of monthly installment.
For example, you apply for a bike loan of Rs. 1,00,000 from the bank at 12% annual interest rate with tenure of 60 months.
In this case, if you convert annual interest into monthly interest, then your monthly interest rate is 12/12*100 = 0.01 (where 12 is the number of months in a year).
Therefore, EMI = 1,00,000*0.01* (1+0.01)^60/([(1+0.01)^60 ]-1)
EMI = Rs. 2,224
This means you will have to pay Rs. 2,224 for 60 months to repay the entire loan. The total amount you will pay = Rs. 2,224 * 60 = Rs. 1,33,440 which includes Rs. 33,440 of interest on Rs. 1,00,000 loan amount.
You pay the same EMI every month. However, the interest amount that you pay every month is not the same. This is because after you pay your first EMI, the interest for the next month is calculated on the outstanding principal which is your new balance.
Make sure to input the necessary information such as the capital amount, rate of interest, and the tenure in months to calculate the EMI in the above-mentioned formula.
