Car Loan in India 2026

Note: Interest rates will differ from one bank to another. This makes it critical to compare interest rates before choosing the best auto loan to apply for.

Fixed vs. Floating Car Loan Interest Rates 

Car loans in India come with two types of interest rates: 

• Fixed Rate: Stays the same for the whole loan tenure, so your EMI never changes. This makes budgeting simple but the starting rate is usually a little higher than floating. 

• Floating Rate: Moves up or down in line with the lender's benchmark rate (linked to the RBI repo rate or MCLR). Your EMI can rise or fall during the loan, but floating-rate loans can come with their own benefits. 

Types of Car Loans

The different types of car loans are mentioned below:

• New Car Loan: New car loans can be used to purchase a brand-new car straight out of the showroom. Depending on the bank, the interest rates will vary. Up to 100% of the on-road price of the car may be provided as a loan.
• Used Car Loan: Lenders offer used car loans up to 80-85% of the price of the car at attractive interest rates for a loan tenure up to 5 years. However, certain lenders will offer loans for cars that have been purchased within the last 5 years.

• Loan against Car: When one is in dire need of funds, he or she can pledge his or her old car as collateral in order to obtain sufficient funds to purchase a new car. This is known as Loan against Car. If you have a bad credit score, you can pledge your old car to the bank as collateral to obtain some much-needed funds.

Types of Car Loans 

The different types of car loans are mentioned below: 

• New Car Loan: New car loans can be used to purchase a brand-new car straight out of the showroom. Depending on the bank, the interest rates will vary. Up to 100% of the on-road price of the car may be provided as a loan. 

• Used Car Loan: Lenders offer used car loans up to 80-85% of the price of the car at attractive interest rates for a loan tenure up to 5 years. However, certain lenders will offer loans for cars that have been purchased within the last 5 years. 

• Loan against Car: When one is in dire need of funds, he or she can pledge his or her old car as collateral in order to obtain sufficient funds to purchase a new car. This is known as Loan against Car. If you have a bad credit score, you can pledge your old car to the bank as collateral to obtain some much-needed funds. 

• Green Car Loan (Electric/Hybrid Vehicle Loan): Some banks, including SBI, offer dedicated loan schemes for electric and hybrid vehicles, sometimes with a lower interest rate and longer repayment tenure than a standard new car loan. 

• Car Loan Balance Transfer: Allows you to move your existing car loan to a new lender offering a lower interest rate, reducing your EMI or total interest outgo. 

• Top-Up Loan on Car Loan: Some lenders allow you to borrow an additional amount over and above your existing car loan for other personal expenses, using the same car as security. 

Key Components of a Car Loan

The main components of a car loan are as follows:

• Monthly Instalments: The EMI that must be paid every month. EMI consists of interest and principal amount.  
• Down Payment: The upfront amount paid when you purchase the car.  
• Loan Term: The tenure or duration of the loan. EMIs must be paid for the selected tenure.  
• Rate of Interest: The interest rate charged by the lender on the Vehicle loan that has been availed.
• Principal Amount: The amount that is borrowed to buy the car. The principal amount does not include any fees or interest levied by the bank.

Down Payment and Loan-to-Value (LTV) Ratio 

The Loan-to-Value ratio is the proportion of the car's price that the lender is willing to finance. A higher down payment lowers the LTV ratio, which typically works in your favour: 

• A lower LTV reduces the lender's risk, which can help you negotiate a better interest rate. 

• A larger down payment means a smaller loan amount, which lowers your EMI and total interest paid. 

• For used cars, the LTV is usually calculated on the lender's own valuation of the vehicle, not the price you have agreed to pay the seller, so budget for the difference. 

How to Apply for a Car Loan

Online

Most lenders provide the option to apply for a car loan online and the process is mentioned below:

• You will need to visit the official website of the lender to apply for a loan.

• Select ‘Apply Now’ under the car loan section.

• Enter the relevant details.

• The documents can be uploaded.

• A customer service representative will call you to process the request.

You can visit the bank branch and apply for a car loan. The relevant documents must be submitted. Once the verification process is completed, the loan will be provided.

Offline

• You can visit the bank branch and apply for a car loan.

• The relevant documents must be submitted.

• Once the verification process is completed, the loan will be provided.

Eligibility Criteria to Avail a Car Loan

The Car Loan Eligibility Criteria can be different for different banks. The common criteria are as follows:

• The Age of the individual must be between 18 years and 75 years.
• Minimum net monthly income of Rs. 20,000.
• At least one year of employment with the current employer.
• Must be salaried or self-employed, working for a government establishment or a private company.

Documents Required to Avail a Car Loan

To prove your eligibility, you'll need to provide certain documents. Though this too is specific to different lenders, the common documents will be:

Note: Make sure you check exactly what documents the lender wants. The documents required can change depending on your situation too. The documents required to take a used car loan are the same as above.

Checklist to Follow While Applying for a Car Loan

Car Loan EMI Calculator

In case you wish to avail a car loan to purchase a four-wheeler, you can use BankBazaar’s car loan EMI calculator to check the monthly payments. The calculator is easy to use and only basic details such as the loan amount, processing fee, tenure, and interest rate must be entered. Once the details have been entered, results are displayed immediately, hence, saving time.

Some of the main advantages of using BankBazaar’s car loan EMI calculator are mentioned below:

• A complete break-up of the amount that needs to be paid will be provided.
• Your budget can be planned as you will know the EMIs.
• Accurate results are provided.
• Helps in saving time as results are displayed immediately.

How to Calculate Car Loan EMI?

The Equated Monthly Installments (EMIs) that you will pay will depend on a few key factors.

The EMI for any type of loan is essentially calculated using a formula. The formula is as follows:

• The loan amount.
• The interest rate that is applicable to the loan.
• The tenure of the loan.
• The processing fees.

The higher the loan amount, the higher your EMI will be. Similarly, the shorter the loan tenure the higher the EMI. To find the best compromise between an affordable EMI and duration you should check out our car loan EMI calculator.

Choosing the Right Car Loan

• Compare Multiple Lenders: Interest rates, processing fees and prepayment terms vary significantly between banks and NBFCs, so compare the total cost, not just the headline rate. 

• Check your Credit Score: Improving your score even by a small margin before applying can meaningfully reduce your rate. 

• Decide on your Car and Budget: Finalise the car you want, then check whether the EMI comfortably fits your monthly budget, ideally keeping total EMIs (including any existing loans) within 40–50% of your net monthly income. 

• Watch for Hidden Costs: Ask about processing fees, documentation charges, loan insurance and any charges for changing your repayment mode. 

• Consider the Tenure Carefully: A tenure of 4–5 years is often a reasonable balance between an affordable EMI and manageable total interest. 

• Review the Insurance Costs: Car insurance is a recurring cost and should be factored into your overall affordability check. 

Features & Benefits of Car Loans

When it comes to car loans in India, in general, the following features and benefits are offered. Note that the following is a generalised look at the advantages offered by car loans. Individually, lenders may have highly customized and specialized offers for their customer base.

• Car loans in India help you purchase a car even if you don’t have the full amount upfront. 

• Most lenders finance the entire on-road price, often with no down payment required. 

• Some banks offer loans in crores, giving you wide freedom to choose your car. 

• Car loans are usually secured loans, with the car serving as collateral. 

• Procuring a car loan is simpler compared to other loans, and even those with lower credit scores may qualify (varies by lender). 

• Many loans offer fixed interest rates, ensuring predictable monthly payments. 

• Interest rates are often based on your credit score - higher scores can get you cheaper loans. 

• Car loans are available for both new and used cars.

Factors that Affect Car Loan Interest Rate 

The main factors that affect car loan interest rates are mentioned below: 

• Credit Score: The single biggest factor. A score of 750+ typically qualifies you for the lowest advertised rates; a score below 700 usually means a higher rate or a stricter review. 

• Income and Job Stability: Higher, steady income and longer tenure with your current employer reassure lenders of your repayment ability. 

• Loan Tenure: Shorter tenures often carry marginally lower rates but higher EMIs. 

• Down Payment: A higher down payment lowers the lender's risk and can help you negotiate a better rate. 

• New vs. Used Car: New car loans attract lower rates than used car loans. 

• Relationship with the Lender: Holding a salary account, savings account or fixed deposit with the bank can sometimes secure a preferential rate. 

• Women Applicants: Several banks offer a rate concession for women borrowers. 

• RBI Policy and Market Conditions: Changes to the RBI repo rate influence floating rates across the market. 

Advantages and Disadvantages of Car Loans 

The main advantages and disadvantages of car loans are mentioned in the table below:

Common Mistakes to Avoid When Availing a Car Loan 

Some of the common mistakes that must be avoided when availing a car loan are mentioned below: 

• Not comparing car loans from different lenders. 

• Choosing the longest possible tenure just to lower the EMI, without checking the total interest cost. 

• Ignoring processing fees, insurance costs and other charges when comparing loans. 

• Not checking your credit score before applying, which can lead to rejection or a higher rate. 

• Overlooking whether the loan is fixed or floating, and what that means for prepayment charges. 

• Skipping the fine print on foreclosure terms, especially for fixed-rate loans. 

A good credit score can help you secure lower interest rates on loans and credit cards.

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