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Car Loan

Car Loan - A car loan is a financial agreement that allows you to borrow money to purchase a vehicle, which you repay over time with interest.

In India, car loans come with low interest rates and can be repaid over up to 8 years. Some lenders may offer loans covering up to 100% of the car’s on-road price.

Updated On - 01 Jan 2025

You can compare the car loan interest rates offered by various lenders to choose the best option. Lenders offer car loans at low-interest rates if your credit score is high.  

Compare Car Loan in India 2024

Here's a comparison of some of the best car loan schemes available in 2024, highlighting the starting interest rates  and tenure:

Name of the Bank

Interest Rate (p.a.)

Tenure

State Bank of India

9.10% p.a. onwards

Up to 7 years

Indian Overseas Bank

8.85% p.a. onwards

Up to 7 years

IDFC First Bank

9.99% p.a. onwards

Up to 10 years

Jammu and Kashmir Bank

  1. RLLR + 0.75% p.a. onwards (floating)
  2. RLLR + 0.25% p.a. onwards (fixed)

Up to 7 years

Canara Bank

8.70% p.a. onwards

Up to 7 years

HDFC Bank 

9.40% p.a. onwards (Rack Interest)

Up to 7 years

IndusInd Bank

8.00% p.a. onwards

Up to 5 years

ICICI Bank

9.10% p.a. onwards

Up to 7 years

Karur Vysya Bank

9.60% p.a. onwards

Up to 7 years

South Indian Bank

8.75% p.a. onwards

Up to 7 years

Kotak Mahindra Bank

7.70% p.a. onwards

Up to 7 years

IDBI Bank

  1. 8.90% p.a. onwards (floating)
  2. 9.20% p.a. onwards (fixed)

Up to 7 years

Yes Bank

Contact the bank

Up to 8 years

Karnataka Bank

8.88% p.a. onwards

Up to 7 years

Federal Bank of India

8.85% p.a. onwards

Up to 7 years

Equitas Small Finance Bank

9.00% p.a. onwards

Up to 7 years

Punjab National Bank

  1. Floating: 8.75% p.a. onward
  2.  Fixed: 9.75% p.a. onwards

Up to 7 years

Union Bank of India

8.70% p.a. onwards

Up to 7 years

Axis Bank

9.30% p.a. onwards

Up to 7 years

Bank of Baroda

  1. Fixed: 9.05% p.a. onwards
  2. Floating: 9.40% p.a. onwards

Up to 7 years

Tamilnad Mercantile Bank

10.70% p.a. onwards

Up to 7 years

Bank of India

8.85% p.a. onwards

Up to 7 years

Bank of Maharashtra

8.70% p.a. onwards

Up to 7 years

Central Bank of India

8.70% p.a. onwards

Up to 7 years

Indian Bank

8.75% p.a. onwards

Up to 7 years

UCO Bank

8.70% p.a. onwards

Up to 7 years

Bandhan Bank

9.47% p.a. onwards

Up to 7 years

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

Car Loan in India

Types of Car Loans

The different types of car loans are mentioned below:

  1. 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.
  2. 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.
  1. 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.

Here is a Tip!

It is vital that you maintain a good credit score when applying for an auto loan. Apart from the loan getting approved quicker, lenders will offer low interest rates if your credit score is good.

No security or collateral is required when availing a car loans. The car acts as the security.

Key Components of a Car Loan

The main components of a car loan are as follows:

  1. Monthly Instalments: The EMI that must be paid every month. EMI consists of interest and principal amount.  
  2. Down Payment: The upfront amount paid when you purchase the car.  
  3. Loan Term: The tenure or duration of the loan. EMIs must be paid for the selected tenure.  
  4. Rate of Interest: The interest rate charged by the lender on the Vehicle loan that has been availed.
  5. 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.

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:

  1. You will need to visit the official website of the lender to apply for a loan.
  1. Select ‘Apply Now’ under the car loan section.
  1. Enter the relevant details.
  1. The documents can be uploaded.
  1. 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:

  1. The Age of the individual must be between 18 years and 75 years.
  2. Minimum net monthly income of Rs. 20,000.
  3. At least one year of employment with the current employer.
  4. 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:

Requirements

Individuals

Identity proof (any of the following)

Aadhaar, Passport, Driving license, Voters ID card, PAN card

Address proof (any of the following)

Aadhaar, Passport, Driving license, Ration card, Utility bills

Proof of income

Form 16, Salary slips,  if you are salaried, Latest Income Tax Returns, Bank statements going back 6 months

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 Car Loan

Steps

Requirement

Inference

Application

Compare all offers available

To find the loan that offers you the highest loan amount and the most affordable interest rate

Submit Income Proof

Bank Statement (last 6 months) Pay-Slips (last 3 months) IT- Returns (last 2 years)

Lender wants to establish your ability to repay the loan

Submit Proof of Address and Identity

PAN Card, Voter's ID, Aadhaar Card, Passport, etc.

Lender wants to establish your nationality, identity, and permanent address

Credit History

PAN Card

Lender wants to check your past credit records and establish if you can be trusted to make regular repayments

Information About Vehicle

Sales Receipts from the showroom from where the vehicle was purchased

Lender must confirm that the deal was affected as intended

Proof of Insurance and Driving License

Copies of the vehicle's Motor Insurance and your Driving License

Lender must establish that all laws and protocols are followed with regard to the purchased vehicle.

Car Loan VS Personal Loan

When it comes to a big purchase, for example a car, we often resort to loans for financing the same. Both personal loans and car loans are two of the biggest and most common financing options that are availed by consumers.

A Personal Loan can be used for any purpose. However, car loans are particularly available for car purchases. To have a better understanding, you can check the pros and cons of both products.

Pros and Cons of Car Loans

Pros:

  1. Interest rates are usually low.
  2. It is easier to use.
  3. Since it is a secured loan, an individual with a mediocre credit score is also probably eligible for the loan.
  4. The vehicle itself acts as a security against the loan.

Cons:

  1. You will be required to provide a down payment.
  2. The car will be hypothecated to the bank, and you will receive complete ownership only after all payments have been made.

However, it is advised that you compare different loan products and then choose the one that suits your requirements.

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:

  1. A complete break-up of the amount that needs to be paid will be provided.
  2. Your budget can be planned as you will know the EMIs.
  3. Accurate results are provided.
  4. 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.

  1. The loan amount.
  2. The interest rate that is applicable to the loan.
  3. The tenure of the loan.
  4. 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

  1. Compare: BankBazaar.com can help you compare the various vehicle loan options available to you.
  2. Interest Rate: Choose a loan that offers you the best interest rate along with the loan amount you need.
  3. Keep it Simple: Choose the car before applying for the loan and make sure the cost of the car fits your budget.
  4. Hidden Fees and Charges: Sometimes what appears obvious will have a hidden component. It is important to check for any hidden fees and charges.
  5. Special offers: There could be special offers available when you are applying for your loan. Make sure you take advantage of them.
  6. Insurance: Check the insurance premium for the car as this is a recurring cost.

In case of bad credit, is a long-term car loan a better option?

According to financial experts, it is always recommended to opt for a short-term loan in case you have bad credit. Even though the monthly payments will be reduced, the interest rates will be much higher for long-term loans.

The interest rates are usually high in case you have bad credit, and long-term loans will further increase it. Negative equity is another risk that comes with long-term loans as well. Negative equity comes into effect when the value of the car is lower than the loan amount.

The chances of the car needing repairs during the loan duration also increase. Over a duration of time, wear and tear occurs and there are chances of major repairs which could increase the costs as well.

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.

  1. It helps you purchase a car even if you don't have all the money for it right now.
  2. Most lenders will finance the on-road price of the car.
  3. This means no down payments.
  4. With some banks offering financing in the crores, you are not limited in your choice of cars
  5. Most auto loan offerings in India are secured loans. This implies that the car serves as the security/collateral for the loan.
  6. Procuring a car loan is usually simple when compared to other loan products. Individuals with slightly unsavoury credit scores can also hope to procure one. However, this option differs from bank to bank.
  7. Car loans in India often offer fixed interest rate options. This means you are always assured of a fixed amount that needs to be repaid monthly.
  8. Many lenders will offer interest rates based on your credit score so a high score to get you a cheaper loan.
    1. Loans are provided for used and new cars.

How to Get a Car Loan Quickly?

When you want to receive funds to purchase the new or used car that you have been eyeing for a while, it is better that you opt for a pre-approved loan. To avail such a loan, you can follow a few steps to quickly receive the required funds.

  1. Check Your Credit Report You can check your credit report to verify your standing in terms of credit score. A score of 750 or more can get you a lower interest rate. However, the interest rate for a score of 650 to 750 will be slightly higher. If you have defaults in your report or have a very low score, your application may be rejected.
  2. Pay Your Bills on Time In order to avail a loan to purchase your dream car, you must have a minimum monthly pre-tax income and a manageable debt-to-income ratio (DTI). While it is usually not possible to change one's income, you can improve your DTI by clearing off all your pending credit card debts.

To create a better credit profile, you should always pay your bills on time. If that is not possible then you can make timely payment of your bills at least 6 months prior to the loan application.

If you pay your bills on time, it assures the lender that you will also repay the Equated Monthly Installments (EMIs) on time. This, in turn, will help you secure a loan easily.

  1. Look for Car Loan Options: There are multiple options available in the market through which you can get a loan to purchase your new or used car. You should check the car loan interest rates of different banks and car financing firms in order to find the one that fits your needs.
  1.  Borrow as Less as Possible: By paying a larger amount upfront as a down payment, you can reduce the sum that you will have to borrow in order to match the price tag of the car you have chosen.

If you borrow a lesser amount, you will be in a better position to repay your loan quickly since a smaller loan amount means smaller EMIs or a shorter loan tenure.  Additionally, the amount that you will have to pay to your bank or car financing organisation as interest will also reduce.

  1. Be Sure to Choose a Plan That Fits Your Budget: The repayment capability of an applicant greatly impacts the approval of a loan that he or she has applied for. As you decide to get a loan to purchase the car that you have always wanted, you should make sure that you choose a scheme that you can afford. If you are already paying EMIs for other loans that you have availed, you should ensure that you can also pay the EMI.
  1. Pay Attention to the Terms of the Loan: An auto loan that has low monthly EMIs but consists of a longer tenure might not be viable for you. Before you finalise your financing scheme, you should always try to opt for a plan that carries the lowest interest rate and the shortest loan tenure possible. Avoid being tricked into an expensive payment situation by ensuring that the loan terms are conclusive.
  1. Get a Car Insurance with Complete Coverage: While offering a loan, the main concern of banks and NBFCs is not to incur any losses. Therefore, having a full-cover insurance is a requirement for many organisations before sanctioning a car loan as it helps recover the balance debt in case there is an accident wherein the borrower is at fault.

Foreclosing a Car Loan

When you take an auto loan, you can repay it in Equated Monthly Instalments (EMIs) till the end of the repayment tenure. However, if you decide to pay off the outstanding loan amount before your tenure ends, you will be foreclosing or prepaying your loan.

The foreclosure/prepayment facility is offered by most lenders for a penalty fee though some lenders may allow you to foreclose/prepay your car loan without charging you any penalty.

You can foreclose your car loan if your income has increased, and you wish to clear off your liability. It also takes away your burden of having to make monthly EMI payments. Foreclosing a car loan will release the hypothecation on the car and give you full ownership.

As stated above, some lenders may charge you a penalty on loan foreclosure. Hence, before you decide to foreclose a loan, it is a good idea to go through the clauses associated with it carefully.

Top-Up Loan on Your Car Loan

If, after taking a vehicle loan, you need quick or additional funds for purposes such as a wedding, home renovation, medical emergency, etc., you can get a top-up loan on your existing car loan. You can avail up to 150% of the car's value as a top-up loan.

Most lendersthat offer a top-up on their car loans will require you to maintain a clear payment record for at least 9 months. The process to avail a top-up loan on your existing car loan is quick and requires minimal paperwork.

Some of the banks that offer top-up on laons are HDFC Bank, Axis Bank, and Kotak Mahindra Bank.

Things to keep in mind when availing a used car loan

In India, buying used cars are very popular. There are various finance options also available in case you wish to buy a pre-owned car. Most Non-Banking Financial Companies (NBFCs) and banks offer loans for pre-owned cars.

However, various points must be considered before buying a used car on loan. It is important that you compare the interest rates offered by various banks and NBFCs before selecting one. The loan tenure must also be chosen wisely. Even though the EMI amount will reduce for longer tenures, the interest rates would increase.

The rate of interest for used car loans ranges between 8.8% and 17%. It is vital that you check the processing fees that are being levied as well. Few NBFCs and banks charge a high processing fee.

FAQs on Car Loan

  • What car models are financed by the standard car loan in India?

    Unless otherwise specified, almost all small to medium sized cars, Commercial Vehicle Loan, Sports Utility Vehicles (SUV), and Multi Utility Vehicles (MUV) come under the purview of car loans available in India. 

  • When applying for the car loan, do I need a guarantor/ security?

    Most lenders in India will not insist upon any guarantors; however, if your annual income does not match up to the expected requirement, then you may be expected to sign-up as a co-applicant and/or guarantor

  • What are the commonly available car loan repayment tenures?

    Repayment tenures usually range from 12 months to 84 months (1-7 years).

  • Can I get 100% funding to buy a car?

    Yes, certain lenders offer 100% of the on-road price of the car as a loan.

  • Can I pre-pay the entire loan amount? What are the conditions involved?

    Yes, you can prepay the entire car loan and save on vital interest payments in the future. However, most banks will allow the pre-payment option after you have chalked off 6 months on your loan tenure.

  • What kind of a credit score do you need to buy a car?

    Just like with most loans, a high credit score above 750 is ideal. But you can still apply for a loan if your credit score is above 600.

  • Will my credit score affect the interest rate?

    Yes. some banks will offer lower interest rates to applicants with high credit scores.

  • What is the minimum credit score I need to get a car loan?

    When you apply for a car loan, lenders will look for a credit score of at least 750. Some banks may offer you a car loan despite your low credit score but they may charge a higher interest rate.

  • Should I take a car loan from the car dealership or bank?

    Before you apply for any car loan, ensure that you explore all the options available. Once you explore, you will get an idea about the benefits offered by various lenders on their car loans. Compare the benefits offered and pick a lender that fits your requirements. Whether it is a bank or a car dealership, pick the one that offers better interest rates.

  • Do banks offer finance for used cars?

    Yes, many top lenders such as SBI, HDFC Bank, etc., offer loans to buy used cars.

  • What will lenders look for when I apply for a car loan?

    One of the most important factors that lenders consider before offering you a car loan is your credit score, The other factors that lenders look for when you apply for a car loan are your employment status, residence and job stability, income, debt-to-income ratio, etc.

  • What is the lowest EMI that I need to pay for a car loan?

    The amount of EMI (equated monthly instalments) that you will be paying towards your car loan will depend on the interest rate, loan amount, and the repayment tenure you choose. You can calculate the EMI by using the EMI Calculator tool available on the BankBazaar website.

  • How much down payment do I need to make to buy a car?

    Making a higher down payment will mean that you will need to avail a lower loan amount to buy a car. When you avail a lower loan amount, there are chances that banks or lenders may offer you a car loan at lower interest rates.

  • Does HDFC Bank levy any documentation charges in case I avail a car loan?

    Yes, the documentation charges that are levied by HDFC Bank are Rs.650 in case you avail a car loan.

  • Is it possible to preclose the car loan availed from HDFC Bank?

    Yes, you can preclose the car loan availed from HDFC Bank.

  • In case I’m eligible for a pre-approved car loan, will any KYC documents need to be submitted?

    No, you do not have to submit any KYC documents in case you are eligible for a pre-approved car loan.

News about Car Loan

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