What Is A Car Loan Interest Rate? How Can You Calculate It?

Posted on Wednesday, May 17th, 2023 | By IndusInd Bank

Summary: Calculating a car loan interest rate and understanding what’s involved in the equation can be difficult and intimidating. But with a few simple steps, you can learn to determine how much interest you will have to pay on your loan.

If you are considering buying a car with the help of a loan, it is crucial to fully understand your auto loan terms and conditions – especially the interest rate. Understanding how much interest you will be charged on your car loan can help you make a wise financial decision regarding your vehicle and manage its repayments over time. So what exactly is the car loan interest rate? How do lenders calculate this cost? And how do they decide how high or low your interest should be? Read on to know the answers to these questions in detail.

What Is a Car Loan Interest Rate?

For car loans, the interest rate is the additional amount you pay on top of the principal amount borrowed. Interest rates are typically calculated on an annual basis.

<h3>Factors that affect car loan interest rates</h3>

• Credit score: A good credit score is one of the most critical factors to help you secure a low-interest rate on your car loan. Lenders usually reserve their best interest rates for borrowers with high credit scores, as they are considered less risky.
• Loan term: The length of your loan term can also affect your interest rate. Generally, shorter loan terms tend to have lower interest rates than longer loan terms, as the lender has less time to be exposed to potential risks.
• Down payment: Making a larger down payment on your car can help you get a lower interest rate, as it reduces the amount you need to borrow and consequently brings down the lender’s risk exposure.
• Income and employment history: Your income and employment history can also affect your interest rate, as lenders want to ensure that you have a stable source of income to repay the loan.
• Type of car: The type of car you are purchasing can also impact your interest rate. Generally, new cars tend to have lower interest rates than used cars, as they are less risky for the lender.

How To Calculate A Car Loan Interest Rate?

<h3>Importance of using a car loan calculator for accurate calculations: </h3>

• A car loan calculator is essential to get an estimate of the total interest payable on the loan.
• It helps you figure out the impact of different interest rates, loan tenures, and down payment options and arrive at the right decision.
• It allows you to compare varied loan options and choose the one that best suits your budget and financial goals.

<h3>Guide to calculate car loan interest rate: </h3>

Calculating the interest rate on a car loan can seem daunting, but it is actually quite simple. Here is an easy way to calculate the interest rate on car loan:

E= P * R * (1+R)^n/[(1+R)^n -1]

To break it down further, P is the principal amount borrowed, R is the annual interest rate charged by the lender, and N is the number of monthly installments. Lastly, E is the total EMI payable each month.

For instance, if you obtain a car loan of INR 10 lakhs for 2 years or 24 months at an annual interest rate of 12%, the approximate monthly EMI will be: [10,00,000 x 12/100/12 x (1+12/100/12)^24] / [(1+12/100/12)^24-1] = INR 47,073.

Why Choose IndusInd Bank For Car Loan?

IndusInd Bank is a great choice for car loans due to its competitive interest rates, flexible repayment options, and quick loan processing time. With IndusInd Bank car loans, borrowers can choose a loan amount of up to 100% of the car’s on-road price. Additionally, the bank offers loan tenures of up to 7 years, giving borrowers ample time to repay their loans in accordance with their comfort and convenience.

Furthermore, borrowers can benefit from IndusInd Bank’s doorstep service. Use the IndusInd Bank car loan EMI calculator to calculate the monthly loan EMI based on loan amount, interest rate, and repayment tenure with ease. Apply for an IndusInd Bank new car loan today!

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.