How to Calculate Car Loan EMI — Complete Guide with Formula & Amortization Table
Buying a car is a significant financial milestone for most Indians. Whether it is your first hatchback or a premium SUV, understanding how car loan EMI works can save you thousands of rupees over the loan tenure. With car loan interest rates ranging from 7.5% to 14% per annum depending on your credit score, lender, and the vehicle type, even a small difference in the EMI calculation can have a substantial impact on your monthly budget.
In this comprehensive guide, we will explain the car loan EMI calculation formula, provide step-by-step examples for different loan amounts and tenures, show you how to read an amortization table, and share practical tips to reduce your total interest outgo.
What is EMI?
EMI stands for Equated Monthly Installment. It is the fixed monthly payment you make to the bank or NBFC towards repaying your car loan. Each EMI comprises two components: the principal portion (which reduces your outstanding loan amount) and the interest portion (which is the cost of borrowing). In the early months of the loan, a larger portion of your EMI goes towards interest, while towards the end, most of it goes towards the principal.
The Car Loan EMI Formula
The standard formula used by all banks and financial institutions to calculate EMI is based on the reducing balance method:
Where:
- P = Principal loan amount (the amount borrowed)
- r = Monthly interest rate (annual rate divided by 12, expressed as a decimal)
- n = Number of monthly installments (loan tenure in months)
Step-by-Step EMI Calculation Examples
Example 1: ₹10 Lakh Car Loan for 5 Years at 9% p.a.
Given:
- Principal (P) = ₹10,00,000
- Annual Interest Rate = 9%
- Monthly Interest Rate (r) = 9% / 12 = 0.75% = 0.0075
- Tenure (n) = 5 years × 12 = 60 months
Step 1: Calculate (1 + r) = 1.0075
Step 2: Calculate (1 + r)n = (1.0075)60
Let's compute this step by step:
(1.0075)2 = 1.01506
(1.0075)4 = 1.03034
(1.0075)8 = 1.06160
(1.0075)16 = 1.12699
(1.0075)32 = 1.27011
(1.0075)60 = (1.0075)32 × (1.0075)16 × (1.0075)8 × (1.0075)4
= 1.27011 × 1.12699 × 1.06160 × 1.03034
= 1.5657
Step 3: Calculate r × (1 + r)n = 0.0075 × 1.5657 = 0.011743
Step 4: Calculate (1 + r)n - 1 = 1.5657 - 1 = 0.5657
Step 5: Calculate the EMI fraction = 0.011743 / 0.5657 = 0.020758
Step 6: EMI = 10,00,000 × 0.020758 = ₹20,758
So, your monthly EMI would be approximately ₹20,758.
Total repayment: ₹20,758 × 60 = ₹12,45,480
Total interest paid: ₹12,45,480 - ₹10,00,000 = ₹2,45,480
Example 2: ₹15 Lakh Car Loan for 7 Years at 8.5% p.a.
- P = ₹15,00,000
- r = 8.5% / 12 = 0.7083% = 0.007083
- n = 7 × 12 = 84 months
Using the formula: (1.007083)84 = 1.8035
Total repayment: ₹23,847 × 84 = ₹20,03,148
Total interest paid: ₹20,03,148 - ₹15,00,000 = ₹5,03,148
Example 3: ₹20 Lakh Luxury Car Loan for 3 Years at 10% p.a.
- P = ₹20,00,000
- r = 10% / 12 = 0.8333% = 0.008333
- n = 3 × 12 = 36 months
Total repayment: ₹64,538 × 36 = ₹23,23,368
Total interest paid: ₹23,23,368 - ₹20,00,000 = ₹3,23,368
Car Loan Amortization Table (First 6 Months)
Here is an amortization schedule for a ₹10 lakh loan at 9% for 5 years (EMI: ₹20,758):
| Month | Opening Balance (₹) | EMI (₹) | Interest (₹) | Principal (₹) | Closing Balance (₹) |
|---|---|---|---|---|---|
| 1 | 10,00,000 | 20,758 | 7,500 | 13,258 | 9,86,742 |
| 2 | 9,86,742 | 20,758 | 7,401 | 13,357 | 9,73,385 |
| 3 | 9,73,385 | 20,758 | 7,300 | 13,458 | 9,59,927 |
| 4 | 9,59,927 | 20,758 | 7,199 | 13,559 | 9,46,368 |
| 5 | 9,46,368 | 20,758 | 7,098 | 13,660 | 9,32,708 |
| 6 | 9,32,708 | 20,758 | 6,995 | 13,763 | 9,18,945 |
Notice how the interest portion decreases each month while the principal portion increases. This is the hallmark of the reducing balance method.
Car Loan Interest Rates by Bank (August 2025)
| Bank / NBFC | Interest Rate (p.a.) | Processing Fee | Max Tenure |
|---|---|---|---|
| State Bank of India (SBI) | 8.50% - 9.25% | Nil - 0.50% | 7 years |
| HDFC Bank | 8.75% - 10.00% | 0 - 0.75% | 7 years |
| ICICI Bank | 8.65% - 10.25% | 0.50% - 1.00% | 7 years |
| Axis Bank | 8.70% - 10.50% | 0.50% | 8 years |
| Kotak Mahindra Bank | 8.60% - 9.90% | Up to 0.50% | 7 years |
| Bajaj Finserv | 9.00% - 13.00% | 0.50% - 1.50% | 6 years |
| Tata Capital | 8.75% - 12.00% | Up to 1.00% | 7 years |
Factors That Affect Your Car Loan EMI
1. Loan Amount
The higher the loan amount, the higher the EMI. Most banks finance up to 80-90% of the car's on-road price. If you make a larger down payment, your EMI reduces proportionally. For a ₹10 lakh car with a ₹2 lakh down payment (80% financing), the EMI on a ₹8 lakh loan is about ₹16,606 compared to ₹20,758 for a full ₹10 lakh loan.
2. Interest Rate
Even a 0.5% difference in interest rate can have a significant impact. For a ₹10 lakh loan over 5 years:
- At 8.5%: EMI = ₹20,518, Total Interest = ₹2,31,080
- At 9.0%: EMI = ₹20,758, Total Interest = ₹2,45,480
- At 9.5%: EMI = ₹20,998, Total Interest = ₹2,59,880
That 1% difference costs you nearly ₹29,000 in extra interest.
3. Loan Tenure
Longer tenures reduce the EMI but increase the total interest paid. For a ₹10 lakh loan at 9%:
- 3 years (36 months): EMI = ₹31,800, Total Interest = ₹1,44,800
- 5 years (60 months): EMI = ₹20,758, Total Interest = ₹2,45,480
- 7 years (84 months): EMI = ₹16,105, Total Interest = ₹3,52,820
A 7-year loan saves you ₹11,653 per month compared to a 3-year loan, but costs you ₹2,08,020 more in total interest.
4. Credit Score
Your CIBIL score plays a crucial role in determining the interest rate offered by lenders. A CIBIL score above 750 typically qualifies you for the lowest rates. Scores below 650 may result in higher rates or outright rejection.
Tips to Reduce Your Car Loan EMI and Interest
1. Make a Larger Down Payment: Aim for at least 30-40% down payment instead of the minimum 10-15%. This reduces both your EMI and the total interest paid over the loan tenure.
2. Improve Your Credit Score: Check your credit report for errors, pay off existing debts, and maintain a healthy credit utilization ratio before applying for the loan.
3. Compare Multiple Lenders: Do not accept the first offer. Use our car loan EMI calculator to compare offers from at least 3-4 banks and NBFCs.
4. Choose a Shorter Tenure if Affordable: If you can afford a higher EMI, opt for a 3-4 year tenure instead of 5-7 years. The interest savings are substantial.
5. Negotiate the Processing Fee: Many lenders charge 0.5% to 1% as processing fee. Some waive it during festive seasons. Ask for a waiver or reduction.
6. Consider Part-Prepayment: Most car loans allow part-prepayment without penalty after 6-12 months. Use bonuses or windfalls to make part-prepayments and reduce the principal.
Car Loan EMI Calculation Using Excel / Google Sheets
You can calculate car loan EMI easily in Excel or Google Sheets using the PMT function:
For a ₹10 lakh loan at 9% for 5 years:
=PMT(9%/12, 60, -1000000)
This returns ₹20,758. The negative sign before the principal amount indicates an outgoing payment.
New Car vs Used Car Loan — EMI Comparison
Used car loans typically have higher interest rates (11% to 15%) and shorter tenures (3-4 years) compared to new car
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