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How to calculate EMI for car loan: A step-by-step guide


by Mahindra Finance


February 7, 2024


5 mins read

Buying a car is a dream for many. To fulfil this aspiration, many, who may not have enough savings to buy their dream car in cash, take car loans from banks by paying a small down payment. Such car owners pay the remaining sum in equated monthly installments (EMIs). If you’re also planning to take a car on loan, but don’t know how to calculate EMI for car loan, worry not; we’re here to help. To begin with, know your car EMI interest rate to calculate the monthly EMI by using a car EMI calculator. 

Factors affecting EMI for a car loan

Calculating EMI for a car is easy as you only need to take the following factors into account:

1. Principal: The total loan amount sanctioned by the lender is called principal. It includes the cost of the car and other charges like taxes and insurance, minus any down payment made by the borrower.

2. Car EMI Interest Rate: The car loan interest rate is usually on a per-annum basis. Banks determine the interest rate of a car loan based on multiple factors such as repo rates, credit score of the borrower, loan tenure, and loan amount.

3. Loan Tenure: Monthly EMI for cars also depends on loan tenure. In most cases, the longer the tenure, the lower the monthly installment. Similarly, if you take a car loan with a smaller tenure, you will end up paying a higher EMI. However, do remember that you will end up paying more money as interest if you take a car loan with a longer tenure.

4. Down Payment: A higher down payment, which is the upfront amount paid by the borrower at the time of purchasing the car, reduces the principal amount. The higher the down payment, the lower your monthly EMI for the cars. 

5. Credit Score: Last but not least, your credit score determines car's EMI interest rate. A better credit score simply means that you will get a car loan at a lower interest rate and vice versa. 

How to calculate EMI for car loan?

By using a simple formula, you will know how to calculate EMI for car loan. You can go through the following steps to find out how to calculate car EMI:

1. Know your loan details 

You should start by knowing the loan details such as interest rate, loan tenure, and foreclosure charges, among other things.

2. Use the EMI formula

  • EMI is the Equated Monthly Installment
  • P is the principal amount (loan amount),
  • r is the monthly interest rate (annual rate of interest divided by 12 and multiplied by 0.01 to convert it to a decimal)
  • n is the loan tenure in months

3. Consider additional fees

Some lenders may charge additional fees such as processing fees or documentation charges. These charges increase the overall cost of taking a car loan. You should add these fees when calculating the total cost of your car loan. However, do note that in most cases, they won’t have much impact on the monthly car loan EMI you will be paying. 

How to reduce monthly EMI for car?

If you feel that the monthly EMI of the car you’re planning to purchase is higher than your budget, you can reduce your monthly EMI. You can play with different values to understand how loan tenure, interest rate, and principal amount affect the monthly EMI for the car. Here are a few ways using which you can reduce the monthly EMI for your car: 

  • Paying a higher down payment for your car
  • Taking a smaller car loan
  • Going for the lowest interest rate possible
  • Increasing the loan tenure 


Hopefully, by now, you have understood how to calculate EMI for car loans. Using the calculator, you can determine how to calculate car EMI before even visiting a car showroom. Based on this information, you can plan your next car purchase. 

If you’ve already made up your mind and are looking for an affordable car loan, you can go with Mahindra Finance as it provides up to 100% financing on ex-showroom value from car brands such as Mahindra, Hyundai, TATA Motors, Maruti Suzuki, and Renault, among others.

Mahindra Finance also offers multiple repayment options. You can use the car loan EMI calculator to go through these options and find out which one suits your needs the best. Last but not least, there is minimal documentation and quick disbursal so that you can get your dream car the day you want. 

Frequently Asked Question (FAQs)

Q. How does a car EMI calculator work?

A car EMI calculator uses inputs such as principal, interest rate, and loan tenure to calculate the monthly installment. 

Q. How to calculate EMI for car loan using a calculator?

To calculate EMI for car loan using a calculator, you need to feed inputs in the right columns. You need to enter the principal amount, car EMI interest rate, and loan tenure to find the EMI for your car loan.

Q. When to use a car EMI calculator?

You should use the EMI calculator before buying a car. Knowing the monthly EMI will help you understand whether you can afford the car or you have the budget to buy an even more expensive car. 

Q. Can I change the loan parameters in the EMI calculator?

Yes, you are allowed to change a few loan parameters such as the loan amount, interest rate, and tenure in the EMI calculator to see how different values impact the monthly installment. 

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