When you’re planning to get a bike loan, the monthly payments must be a concern for you. Being aware of these payments can help you plan ahead and stay prepared. In this article, we’ll explore how you can calculate your monthly payments and interest amount.
In order to understand your monthly payments, you must understand the factors that affect your bike loan and subsequently, your monthly payments. There are three main factors that affect any loan, namely – loan amount, interest rate and loan tenure. Let’s take a closer look at each of these factors to help you make a more informed decision.
- Loan Amount
The loan amount is the total borrowed amount. This will be the total cost of the bike, after deducting your down payment amount. Naturally, a bigger loan amount will translate into a bigger monthly payment as well.
Before taking a bike loan, analyse your finances and then decide the amount that you need to take. This will inform you regarding your financial position and help you understand how much you can afford to contribute towards your monthly payments.
- Interest Rate
Interest rates on bike loans can range anywhere from 6.85% to 28.30% per annum. Since the interest rates on bike loans can vary greatly, it’s important that you shop around before making a decision. A lower interest rate can help you cut down on your monthly payments, so it’s important to try and find a loan provider that offers affordable rates.
If you have an existing relationship with the loan provider, you can try negotiating the interest rates to get a better deal. Having a good credit score can also be helpful in effectively lowering your bike loan interest rates.
- Loan Tenure
Bike loan tenures generally range from 12 months to 60 months. Your entire loan amount (including the interest payable) will be spread over your bike loan tenure. As a general rule, a longer tenure will keep your monthly payments lower and vice versa. However, a longer tenure means that the interest accrues over a longer period of time as well. Choosing a longer tenure period might end up costing in higher interest payments.
There is no one-size-fits-all solution to this, analyse your financial situation, understand how monthly repayments capability and choose a bike loan tenure that suits your needs best.
How to Calculate Your Bike Loan EMI
The simplest way to calculate your bike loan EMI is using a bike loan EMI calculator. Here’s how to calculate your monthly repayments using a bike loan EMI calculator:
- Start by visiting a bike loan EMI calculator page online (many financial institutions’ websites offer this facility).
- Input relevant information such as your bike loan amount, interest rate and bike loan tenure.
- After this, you’ll be presented with your monthly payment amount. Most EMI calculators will also show you the total interest payable depending on the data entered.
Alternatively, you can also calculate your EMIs manually. Here’s how you can go about doing the same:
Formula for EMI calculation: P x R x [(1 + R) N / (1 + R) N – 1]
- P stands for the loan’s principal amount,
- R stands for the rate of interest and
- N stands for the loan tenure (in months)
Here’s an example to help you understand this a little bit better:
Let’s assume that Ramesh takes a bike of ₹1,00,000 at an interest rate of 10% per annum for a period of 24 months.
Here, ₹1,00,000 x 10 [(1 + 10) 24 / (1 + 10) 24 – 1]
Hence, ₹4,614 is your monthly payment towards your bike loan.
How to Reduce Your EMIs
A lower EMI can help you manage your finances more effectively. Here are some simple steps that you can take to reduce your EMIs:
- Choose a longer repayment tenure – a longer repayment period will spread your loan repayment over a longer period of time. This will automatically bring down your EMIs. As discussed before, the catch is that a longer tenure will also result in higher interest payments. So, keep that in mind and choose a repayment plan that works best for you.
- Opt for a loan provider that offers lower interest rates – this one’s a no brainer! Opting for a loan provider that offers lower interest rates will help you bring down your EMI payments and also help lower overall interest payments. As simple as this seems, many of us don’t exercise due diligence while choosing our loan provider. This means that we are potentially missing out on lower interest rates. So, remember to always do some research and understand the industry standards before choosing a home loan provider.
- Make higher down payments – generally, you’ll need to make anywhere between 15% to 30% of the total loan amount as a down payment. It might be tempting to make the lowest down payment possible. But, you might be well-advised to make a higher down payment if you can afford to do so. A higher down payment amount reduces your overall EMI burden and lowers the overall interest payment that you’ll need to make as well.