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How to Calculate Interest Rates on Working Capital Loan

Working Capital Loan Interest Rate

How to Calculate Interest Rates on Working Capital Loan

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A working capital loan is essentially a business loan offered to small enterprises and start-ups to fund their day-to-day expenses. These are usually short-term loans that provide an instant cash flow to the business. The funds obtained from a working capital loan can be used to pay for essential business expenses such as salary, rent, and office overheads, among other things. 

Working Capital Loan Interest Rate

The interest rate levied on a working capital loan is determined by several factors such as the type of business, business vintage, business revenue, and more. You can avail a working capital loan for your business from any of Bajaj MARKETS’ lending partners at interest rates starting from 12% p.a. The application process for the loan is simple and hassle-free and requires minimal documentation.

How to Calculate Interest on Working Capital Loan?

The total amount paid as interest on a working capital loan can be calculated by subtracting the principal amount from the sum of all EMIs paid. For example, if you avail a working capital loan of ₹5 Lakhs at 17% p.a. for a tenure of 3 years (36 months), you will end up paying a total of ₹6,41,749 to the lender, of which ₹1,49,749 (22% of the total amount) will be the total interest paid.

Principal Borrowed

₹5,00,000

Interest Rate

17% p.a.

Loan tenure

3 years (36 months)

EMI

₹17,826

Total Amount Paid

₹6,41,749

Total Interest Paid

₹1,41,749 (22% of the total amount)

Calculating the interest manually can be tiring, and you might even end up miscalculating due to an inadvertent error. Therefore, it is advisable to use the business loan EMI calculator on Bajaj MARKETS to calculate your working capital loan EMIs and the total amount that you would be paying as interest to your lender. The calculator is easy-to-use and has an intuitive interface.

Factors Affecting Working Capital Interest Rates

Financial institutions use multiple factors to determine the rate of interest they would be levying on your working capital loan. Some of the factors that influence the interest rate on your working capital loan are as follows:

 

  • Annual Turnover: The annual turnover of the business is one of the most important factors that lenders consider while determining the interest rate on a working capital loan. Usually, the higher the turnover, the lower the interest rate.

  • CIBIL Score: Your CIBIL score, as you might be aware, is an indicator of your overall creditworthiness. Therefore, any lender would always check your CIBIL score before sanctioning a working capital loan to your business. The higher the CIBIL score, the lower the interest rate levied. A CIBIL score of 750 or above is considered excellent and will help you get better loan offers from the lenders.

  • Business Experience: The chances of a business’ success also depend upon the owner’s business experience. Therefore, you are more likely to get better loan offers from lenders if you have substantial experience in managing a business.

  • Repayment History: Another important aspect that affects the interest rate on your working capital loan is your repayment history. A good history reflects responsible behaviour with regards to the repayment of credit. Lenders charge a lower interest rate if the borrower has a good repayment record.