How car loan EMI is calculated
The calculator first works out the loan you need, then applies the standard reducing-balance EMI formula used by banks and NBFCs:
- Loan amount = on-road price − down payment.
- EMI is the fixed monthly instalment that repays the loan and its interest over the tenure.
- Total interest = EMI × number of months − loan amount.
- Total upfront cost = down payment + processing fee + other upfront costs.
- Total cost of the car with the loan = total upfront cost + all EMIs.
EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1]
P is the loan amount, r the monthly interest rate (annual rate ÷ 12 ÷ 100) and n the number of monthly instalments. Each EMI pays that month's interest on the outstanding balance, and the rest reduces the balance. The EMI Calculator explains the formula step by step.
Worked example: a ₹10 lakh car
Suppose the car costs ₹10 lakh on-road, you pay ₹2 lakh down and borrow the rest at 9% a year for 5 years.
| On-road price | ₹10,00,000 |
|---|---|
| Down payment (20%) | ₹2,00,000 |
| Loan amount | ₹8,00,000 |
| Monthly rate (9% ÷ 12) | 0.75% |
| Monthly EMI (60 months) | ₹16,607 |
| Total interest | ₹1,96,401 |
| Total loan repayment | ₹9,96,401 |
| Total cost of the car with the loan | ₹11,96,401 |
Here (1.0075)60 ≈ 1.5657, so EMI = 8,00,000 × 0.0075 × 1.5657 ÷ 0.5657 ≈ ₹16,607. Over five years the loan adds about ₹1.96 lakh of interest, so the ₹10 lakh car costs roughly ₹11.96 lakh in all, before any processing fee. A rate 1 percentage point higher (10%) would raise the EMI by about ₹391 and total interest by about ₹23,457.
Flat rate vs reducing balance
Some dealers and lenders quote a flat rate, which charges interest on the full original loan for the entire tenure even as you repay it. A reducing-balance rate charges interest only on what you still owe. The same headline number is far more expensive as a flat rate.
| ₹8 lakh, 5 years | EMI | Total interest |
|---|---|---|
| 9% reducing balance | ₹16,607 | ₹1,96,401 |
| 9% flat | ₹19,333 | ₹3,60,000 |
| 5% flat | ₹16,667 | ₹2,00,000 |
Flat-rate interest is simply loan × rate × years: ₹8,00,000 × 9% × 5 = ₹3,60,000, about ₹1.64 lakh more than the reducing-balance loan. A 9% flat rate works out to roughly 15.7% on a reducing basis, and even a 5% flat quote is roughly 9.15% reducing. To compare offers fairly, ask for the reducing-balance rate (or the APR) and compare the total amount you will repay.
Choosing the tenure
For an ₹8 lakh loan at 9%, here is how tenure changes the cost:
| Tenure | EMI | Total interest | Extra interest vs 3 years |
|---|---|---|---|
| 3 years | ₹25,440 | ₹1,15,832 | — |
| 4 years | ₹19,908 | ₹1,55,586 | ₹39,753 |
| 5 years | ₹16,607 | ₹1,96,401 | ₹80,569 |
| 6 years | ₹14,420 | ₹2,38,271 | ₹1,22,439 |
| 7 years | ₹12,871 | ₹2,81,186 | ₹1,65,354 |
A longer tenure makes the EMI easier, but there is a second reason to keep it short: a car loses value from the day it is registered, while the loan balance falls slowly in the early years because most of each EMI goes to interest. With a long tenure, there can be a stretch where you owe more than the car would sell for. That matters if you want to sell or upgrade early, or if the car is written off. Picking the shortest tenure whose EMI you can carry comfortably keeps both the interest and this gap smaller.
Down payment trade-offs
Every rupee you pay down is a rupee you do not pay interest on. On the ₹10 lakh car at 9% for 5 years, a 10% down payment (₹9 lakh loan) means an EMI of about ₹18,683 and interest of ₹2,20,951. A 30% down payment (₹7 lakh loan) brings the EMI to about ₹14,531 and interest to ₹1,71,851 — roughly ₹49,100 less.
The trade-off is liquidity. Do not use your emergency fund for the down payment, and remember that the processing fee, accessories and the first service are also paid in cash. If your savings earn less than the loan rate after tax, a larger down payment usually saves money; if it leaves you short of cash, a slightly smaller one is often the safer choice.
Other costs of a car loan
Processing and documentation fees
Many lenders charge a processing fee, often a percentage of the loan with GST on top, plus documentation or stamp charges. Enter the rupee amount in the optional section to include it in your upfront cost.
Insurance
First-year motor insurance is normally part of the on-road price, but you renew it every year. Dealers or lenders may also offer loan protection or add-on covers; these are usually optional, so check what you are signing up for and compare prices.
Prepayment and foreclosure terms
Rules on part-payment and closing the loan early differ across lenders and between fixed and floating rates. Some allow it only after a set number of EMIs or charge a fee. Read the loan agreement before signing. If you expect a bonus or other lump sum, the Loan Prepayment Calculator shows how much interest an early payment could save.
New vs used car loans
Loans for used cars usually carry higher interest rates and shorter maximum tenures than new-car loans, and lenders may finance a smaller share of the car's value, often based on the car's age and their own valuation rather than the agreed price. The calculator works the same way for both: enter the price you are paying, your down payment and the rate and tenure from your actual offer. For a loan amount you already know, the general Loan Calculator also lets you enter tenure in months.
How much car can I afford?
Start from your monthly take-home pay, not the EMI a lender will approve. The optional affordability check above compares the car EMI with your income using a simple planning heuristic:
- Up to 10% of take-home pay — a lower share.
- More than 10% and up to 20% — a moderate share.
- More than 20% — a higher share; check that fuel, insurance, servicing and parking still fit.
For example, the ₹16,607 EMI above is about 16.6% of a ₹1 lakh monthly take-home income, a moderate share. Also add up all your EMIs: as a general observation, many lenders become cautious once total EMIs pass roughly 40–50% of income. These bands are rough guides, not rules or advice. Not sure of your in-hand pay? The Salary Calculator estimates take-home salary from your CTC.
Assumptions and limitations
- Interest is calculated monthly on the reducing balance at a fixed rate for the whole tenure.
- The first EMI is due one month after the loan is disbursed. Advance EMIs or broken-period interest are not modelled.
- Processing fees and other upfront costs are only what you enter, and are treated as paid upfront.
- Running costs such as fuel, servicing, insurance renewals and tolls are not included.
- Figures are rounded to the nearest rupee for display; your lender's rounding may differ slightly.