Two-wheelers are tremendously popular in India owing to their affordable prices, high fuel efficiency, and low maintenance costs. Not only from a financial point of view, but many bikes and scooters are specifically designed to endure the rough Indian roads and traffic jams that are a daily occurrence. From tier-1 metros to the country’s remote rural areas, you can see people riding their two-wheelers that double up as a multi-functional mode of transportation.
Loans have become a popular way of buying a two-wheeler as you do not need to incur a heavy one-time expense. Instead, you can pay in smaller, monthly instalments that significantly reduce the strain on your finances. However, before doing so, the key aspect you need to consider is the two wheeler loan interest rate. The interest rate greatly affects your monthly EMIs and the final amount you will pay to the lender. Intuitively, the higher the two-wheeler loan interest rate, the more your bike will cost. Let us examine how your loan EMIs are calculated.
Calculate Two-Wheeler Loan EMI
The formula used to calculate EMIs is:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
P = Principal – the amount borrowed as a loan,
R = Interest rate per month, and
N = Number of monthly installments – the term of the loan
Let us take an example to see this formula in action. The assumptions are that you have taken a loan of ₹1 Lakh at an interest rate of 10% for 24 months. If we put these values in the formula, it will look something like this.
[1,00,000 x 0.10 x (1+0.10)^24]/[(1+0.10)^24-1]
Upon solving this equation, you will get the final EMI value of ₹4,614. You can also use this figure and formula to calculate other financial aspects of the loan. For example, if you multiply the EMI with the number of installments of your loan tenure, this will result in 4,614 x 24 = ₹1,10,736. This is your total net amount that is repayable to the lender. If you subtract the principal borrowed from this, you get the total additional amount in interest, i.e., 1,10,736 – 1,00,000 = ₹10,736. To summarise,
- EMI = ₹4,614
- Total Payable Amount = ₹1,10,736
- Interest = ₹10,736
What if the borrowed money came with a two-wheeler loan interest rate of 12% instead of 10%? In such a case, with the principal and tenure being the same, these would be the new values using the above formula.
- EMI = ₹4,707
- Total Payable Amount = ₹1,12,976
- Interest = ₹12,976
As you can see, even a change in the two-wheeler loan interest rate of a mere 2% can result in you paying ₹2,240 more as interest. This figure will rise rapidly for higher principal amounts and interest rates.
Bike EMI Calculator
As you can imagine, this calculation can be a tedious process. Especially when you are doing it multiple times, with different variables, to compare the rates and figure out the ideal amount to be borrowed. Fortunately, there is a quicker and more efficient way of doing this. A bike EMI calculator is an online tool that automatically calculates your monthly loan installments. The best part is that you can use it unlimited times without having to pay anything for it. Not only do you save time, but you also get an accurate idea of the monthly amount you will need to pay. This allows you to plan and manage your expenses more efficiently.
By now, you must be clear about the key factors affecting your loan EMI. These are the principal amount borrowed, the two-wheeler loan interest rate, and the tenure of the loan. By using these, you can calculate the EMI payable each month. Knowing your exact EMI amount before actually taking a loan has numerous benefits.
- You can organise your monthly budget better since you know the exact fixed loan expense. This is also useful in case you have any other ongoing loan that can cause a strain on your finances.
- You can compare the rates and EMI amount among different lenders, empowering you to make an informed decision that is the most effective one.
- Once you know the likely EMI amount, you can decide the loan’s tenure. If the EMI amount appears too steep for your affordability, you can increase the tenure, which will lower the monthly amount. On the other hand, if you can repay the loan at the earliest, then choosing a shorter loan term will save you on the overall interest amount.