How to Calculate Car Loan EMI Manually

Two weeks back, Mr. Arshad was keen to buy a car. After contacting several car dealers, he was able to hitch a ride. The cost of the car was Rs. 5, 35,067, and he was sanctioned a loan of 4 lacs. The remaining amount was paid as downpayment by him.

Mr. Arshad secured this car loan at a discounted rate of 11.25%, and for tenure of 3 years. He had to pay processing fees of Rs. 4350 along with the taxes. He had to pay an EMI of Rs. 13,021 monthly. However, Mr. Arshad was feeling that he was paying more. Like Mr Arshad, many of you may be thinking that their car loan EMI is much higher. There are not convinced by the results of EMI calculator, and prefer crunch the numbers manually.

If you doubt about your EMI amount, then follow these 2 methods, which will help you to calculate the EMI manually. The first method requires you to possess a computer and a spreadsheet program while the second method demands a paper and pencil along with simple mathematical skills.

Method with Excel:

The function used for calculating EMI in Excel is PMT. This function requires three variables, which are rate or interest rate of loan, nper or the loan tenure in months, and pv or present value of the loan. The formula is

EMI = PMT (rate, nper, pv), where rate is always in decimals.(eg: 11% = 0.11)

In Mr. Arshad’s Case, the EMI was PMT (0.1125/12, 36, 400000) = 13020.82374.

Method with Manual Calculation:

For those of you, who are not comfortable with Excel, switch to the basics of Mathematics. The interest charged is compound interest, and EMI is calculated from the overall amount. The formula for EMI is

EMI = [P x R x (1+R) N]/[(1+R)N-1], where P is the Principal amount, R is the rate and N is the loan tenure in months.

In Arshad’s Case,

EMI = [400000*11.25/100*(1+11.25/100)36]/[(1+11.25/100)36-1] = 13020.82.

By using these 2 methods, Mr. Arshad was convinced that he was paying the right amount. So, why not use it yourself and ward off all doubts regarding over-payment of EMI.