Calculating the EMI on Auto Finance

Every credit consultant and auto finance broker advises that every loan applicant should get his/her finances pre approved from a lender before going to a dealership. However, if the borrower still feels more comfortable going to a dealership, then there are several things which should be done to ensure that the auto finance process goes comfortably. One of these things is using an online calculator to check what the most comfortable monthly installment for the applicant is.

An online EMI calculator usually includes four to five different fields – expected rate of interest, the amount of the loan, down payment and term of the loan. The borrower can vary loan term, down payment and interest (by choosing a different lender) to vary the rate of interest. Consider the below mentioned example for checking the calculation involved.

Let the loan amount be 15000 dollars, the expected rate of interest be 10 percent (approximate), term of the loan be four years and the down payment be 2000 dollars. Therefore, the financed amount becomes 13000 dollars. Now, the interest charged over the loan term becomes 5200 dollars. This means the borrower has to pay back 18200 dollars in 48 months which the expected month installment to be around 380 dollars. As aforementioned, the rate, term and down payment can be varied to increase or decrease the monthly installment.

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