Question 1

How is car loan EMI calculated?

Accepted Answer

Car loan EMI uses the reducing-balance formula: EMI = P x r x (1+r)^n / ((1+r)^n - 1), where P is the loan amount, r is the monthly rate and n is the tenure in months.

Question 2

What is a typical car loan interest rate?

Accepted Answer

New car loan rates in India are usually 9% to 12%. Used car loans cost more, often 12% to 16%. Your rate depends on the lender, loan amount, tenure and credit score.

Question 3

Is a flat or reducing rate better for a car loan?

Accepted Answer

A reducing-balance rate is always cheaper than the same flat rate, because interest is charged only on the outstanding balance. A 'flat' rate of 8% can be equivalent to a reducing rate of around 14-15%.

Question 4

Should I take a longer car loan tenure?

Accepted Answer

A longer tenure lowers your monthly EMI but increases total interest, and a car is a depreciating asset. A 3 to 5 year tenure is generally a sensible balance.

Year	Principal Paid	Interest Paid	Balance
Yr 1	₹1.31 L	₹70,383	₹6.69 L
Yr 2	₹1.44 L	₹57,359	₹5.25 L
Yr 3	₹1.59 L	₹43,041	₹3.66 L
Yr 4	₹1.74 L	₹27,303	₹1.92 L
Yr 5	₹1.92 L	₹10,003	₹0

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