Total Cost of a Two-Wheeler Loan: How to Calculate It?

Planning to purchase a new bike or scooter? Avail a bike loan and turn your dream into reality! With bike loans or two-wheeler loans, you can get up to 100% financing of the total cost of the vehicle. But before you apply, let us help give you a rough idea of how much your bike loan would cost. 

In this article, we will guide you on how to calculate the total cost of a two-wheeler loan.

Motorcycle Loan Calculation: Factors to Consider

 Calculating the total cost of your two-wheeler loan involves accounted for several factors:

1. Down Payment

A larger down payment reduces your loan amount and, consequently, the overall interest you'll pay. Try to make a substantial down payment to minimise your loan burden. Ideally, you should try to pay at least 10% to 30% of the total cost of the bike from your pocket. For example, if the bike costs ₹10 lakh, try to pay ₹1 lakh to ₹3 lakh as down payment. This will reduce the loan amount, which in turn would help in reducing your EMI.

2. Credit Score

Your credit score plays a crucial role in determining the interest rate you're offered. A higher credit score (preferably above 750) may qualify you for lower interest rates, potentially saving you thousands over the life of the loan.

3. Loan Tenure

Loan tenure is a significant factor in motorcycle loan calculation. Longer tenures reduce EMIs, making them more affordable on a monthly basis, but they increase the total interest paid over time. Strike a balance between affordable EMIs and minimising total interest. Use Ujjivan SFB’s Two-Wheeler Loan EMI Calculator to check your EMI.

 4. Seasonal Offerings and Discounts

Banks may offer special rates or discounts during the holiday season. Timing your loan application to coincide with these offers could result in significant savings on bike loan costs.

Now that we understand the key factors, let's dive into how to calculate the total cost of a two-wheeler loan.

Learn How to Calculate the Total Cost of a Two-Wheeler Loan

 To calculate the total cost of a two-wheeler loan, you need to consider both the principal amount (loan amount) and the interest charged over the loan tenure. Also, a processing fee – a one-time up-front fee charged at the time of loan disbursal – would be charged by your bank. Consider that cost as well. 

Your EMI (the amount you have to pay to the bank on a monthly basis till your loan is repaid in full) consists of both principal and interest components.

To calculate your monthly EMI, you can use a simple formula:

 EMI = [P x R x (1+R)^N]/[(1+R)^N-1].

Where:

• EMI: Equated Monthly Instalment
• P = Principal amount
• R= Monthly Interest Rate (annual rate divided by 12)
• N= Loan tenure in months

For example, let's assume you take a two-wheeler loan of ₹83,000 at a 10% annual interest rate for a 36-month term. To calculate your monthly EMI:

The calculation steps shown are:

1. EMI = [83000 0.00833 (1 + 0.00833)^36] / [(1 + 0.00833)^36 - 1]
2. EMI = [691.39 * (1.00833)^36] / [(1.00833)^36 - 1]]

The ultimate result is ₹2,766.546 per month.

You will find that your EMI is roughly ₹2,766.546 per month if you perform this calculation.

Disclaimer: The above example is for illustration purpose only. Ujjivan SFB does not take any responsibility for the accuracy of the information. Please use an EMI Calculator or consult with a financial expert for better understanding.

Calculating Total Interest Paid

 To calculate the total interest paid over the loan term, you can subtract the principal amount from the total repayment amount.

Total Interest Paid = EMI x n - P

For example, using the previous example, where the monthly EMI is ₹2,500 and the loan tenure is 36 months:

Total Interest Paid = (₹2,766.546 * 36) - ₹83,000 = ₹99595.656 - ₹83,000 = ₹16595.656

By performing this calculation, you will find that the total interest paid is approximately ₹16595.656 at the end of your loan tenure.

Disclaimer: The above example is for illustration purpose only. Ujjivan SFB does not take any responsibility for the accuracy of the information. Please use an EMI Calculator or consult with a financial expert for better understanding.

Calculating Total Loan Expense

 The total loan expense includes both the principal amount and the total interest paid.

So, continuing with our previous example:

Total expanse: ₹83,000 + ₹16595.656 = ₹99595.656

Hence, you will find that your total loan expense is approximately ₹99595.656.

Disclaimer: The above example is for illustration purpose only. Ujjivan SFB does not take any responsibility for the accuracy of the information. Please use an EMICalculator or consult with a financial expert for better understanding.

Digital Tools for Loan Calculations

Today, online EMI calculators make loan cost calculations simple. Many banks, including Ujjivan SFB, offer these tools. You can input different scenarios, adjust variables like loan amount and interest rate, and instantly see results. This helps you understand how changes affect your EMI and total loan cost, which aids in finding the best loan structure.

Benefits of Calculating Your Two-Wheeler Loan Cost in Advance

 Now that you know how to calculate the total cost of a two-wheeler loan, let's explore why it is important to do so in advance:

• Budget Planning: By calculating your EMI in advance, you can understand how much of your monthly income will be allocated for loan repayment. This allows you to plan your budget effectively and ensure that you can comfortably afford the EMIs. This step is essential to calculate the total cost of a two-wheeler loan and manage your total loan expense efficiently.
•  Loan Comparison: Calculating EMIs for different loan amounts, interest rates, and tenures allows you to compare various two-wheeler loan options. This motorcycle loan calculation enables you to choose the one that best fits your budget and financial goals, ultimately optimising your bike loan cost.
•  Maintaining a Good Credit Score: Paying EMIs on time demonstrates financial responsibility to banks and can increase your creditworthiness. By calculating your EMIs in advance, you will be able to manage your finances more efficiently and make timely payments, thereby improving your credit score. A thorough motorcycle loan calculation aids in maintaining a favorable credit score by ensuring that your total loan expense is manageable.
•  Avoiding Payment Default: Paying EMIs on time is critical to maintaining a healthy financial record and avoiding penalties or late fees. By effectively planning your finances and prioritizing your two-wheeler loan payments, you can stay on track and avoid defaulting on payments. Properly calculating your bike loan cost and total loan expense helps in maintaining financial discipline.

Now that you know how to calculate your bike loan cost, you can choose the bank with the best terms for your two-wheeler loan.