The used car market in India is anticipated to grow at a CAGR of above 11% in value terms and touch a figure of around USD16 billion by FY2027F. Reasons for such commendable growth can be attributed to increasing disposable income and ownership of pre-owned cars and the price of new cars.
Managing the amount required to buy a used car within a month can become burdensome sometimes. Hence, individuals willing to purchase a used car can rely on a second hand car loan. However, while availing such financial assistance, prospective borrowers must know the amount they have to take out from their pocket every month as EMIs.
Second-hand car loan- An overview
A second-hand car loan or pre-owned car loan is a financial product that helps individuals fund the purchase of a used car.
Individuals can repay the loan amount in equated monthly installments (EMI). For this, they can use a used car loan EMI calculator. Read on to learn about this online tool in detail.
Use of an EMI calculator to compute second-hand car loan monthly payables
A second-hand or used car loan EMI calculator is an online calculator that enables loan applicants to compute EMI that they need to pay towards principal and interest payments throughout the loan tenor.
This online calculator allows individuals to decide on a suitable EMI as per their financial standing (i.e. after paying existing debt, monthly other expenses).
The following section discusses the process of using an EMI calculator for an old car loan.
The process to use a second-hand car loan EMI calculator
Here is a step-by-step guide on using a second-hand car loan EMI calculator:
Step 1 – Visit the official website of a lending institution of preference.
Step 2 – Navigate to the webpage that features the EMI calculator.
Step 3 – Enter the loan amount, interest rate, and loan tenure in the respective fields.
Step 4 – After putting the values, click on the calculate button.
The online EMI calculator will display the EMI amount against the values entered. Instead of putting values, borrowers can adjust sliders to set values and get results in a similar way. Borrowers can try various combinations of tenor and loan amounts to get a suitable EMI for second-hand car financing.
The formula used in the second-hand car loan EMI calculator
The second-hand car loan EMI calculator follows a mathematical formula to compute the EMI amount. The formula used is as follows:
[P x R x (1+R)^N]/[(1+R)^N-1]
P = Principal amount,
R = Rate of Interest,
N = Tenor of the used car loan in months.
Factors affecting the EMIs of a second-hand car loan
The factors that affect the EMI of a second-hand car loan are discussed below:
Principal: Principal amount is a crucial factor in determining EMIs. The higher the loan amount, the higher the EMI.
Tenor: Longer tenor results in lower EMI and vice versa. However, borrowers must know that a longer tenor also increases the overall interest outgo.
Interest rate: Second-hand car loan interest rate is another important factor that decides the EMI as well as the total cost of borrowing. Please note that the interest rate of the pre-owned car partially depends on the age of the car, and usually, older cars attract a higher interest rate.
To reduce the cost of borrowing, individuals can opt for an alternative financing option. For instance, they can apply for a personal loan for used car purchasing purposes.
Personal loans come with no-end use restrictions meaning individuals can use them for multiple purposes. On the other hand, if borrowers apply for second-hand car financing, they have to utilize the money for purchasing pre-owned cars only.
In such cases, the personal loan option can be an ideal option if borrowers have other expenses to cover. However, before applying for personal financing, borrowers must know everything about personal loans for used cars.
Further, to secure a personal loan at a reduced interest rate, individuals can improve their eligibility before applying for the same.
For instance, they can work on improving credit scores if they have a low CIBIL score, as a good credit score can help you get better terms on your personal loan for a used car.
There are several financial institutions that offer high-value personal loans at competitive rates. Reputed financial institutions also extend pre-approved offers to make the loan application hassle-free. These offers are also applicable to a variety of financial products, such as personal loans, business loans, credit cards, etc. Individuals can check their pre-approved offers by entering their names and contact details.
With a comprehensive knowledge of the calculation process of second-hand car loan EMI, and the factors affecting it, prospective borrowers can select a convenient EMI as per their repayment capabilities.
Also check – A Step-By-Step Guide To Using A Home Renovation Loan