How are EMIs calculated for a commercial bike loan?

The Equated Monthly Instalment (EMI) is the fixed payment amount you pay each month to repay your commercial bike loan. The EMI depends on three key factors - loan amount, interest rate and tenure.

• Loan Amount: The loan amount is the cost of the commercial two-wheeler you wish to purchase minus any down payment you make. The higher the loan amount, the higher the instalment.
• Interest Rate: Interest rates on commercial bike loans typically range from 8% to 30% per annum. The rate offered is based on your credit score, income stability, company profile, etc. Opting for a lower interest rate reduces your monthly EMI burden.
• Tenure: Commercial bike loans are usually available for 12 months to 5 years or more. The longer the repayment period, the lower the EMI amount. However, you end up paying more interest overall when tenure is higher.

The EMI is derived using the following formula:

EMI = P x R x (1+R)^N/((1+R)^N-1)

Where,

P is the loan amount,

R is the monthly interest rate, and

N is the loan tenure in months.

For example, if the principal loan amount is ₹1,00,000 at an annual interest rate of 15% for a 4-year (48 months) tenure:

The monthly interest rate (R) is 15/12 = 1.25%

Putting this into the formula,

EMI = [1,00,000 x 0.0125 x (1+0.0125)^48] / [(1+0.0125)^48 - 1]

Which gives an EMI of ₹2,783

Many financial institutions also have EMI calculators on their websites, which you can use to estimate your monthly repayments before applying. Providing accurate details on the loan application further helps derive the exact EMI amount you must pay each month