If you’re planning to buy a car, whether new or used, understanding the financing process is crucial. That’s why we’ve put together everything you need to know about car loans in India. From comparing interest rates to calculating EMIs, this guide will simplify your journey. With so many lenders and offers available, it’s important to understand you need to know about car loans in India before making a decision. Whether it’s choosing between a new or used car loan, or finding the best car loan interest rate, this blog covers all you need to know about car loans in India in 2025 and beyond.
In this blog, we’ll dive deep into what a car loan is, the car loan interest rates, the difference between a new and used car loan, how car loan EMIs work, how to get the best car loan interest rate, and what you need to know about current car loan rates and car interest rates.
What Is a Car Loan?
A car loan is a type of secured loan that allows you to borrow money from a bank or financial institution to purchase a vehicle. The vehicle acts as collateral, which means the lender can repossess it if you default on payments.
There are primarily two types of car loans:
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New Car Loan: Used to purchase a brand-new vehicle.
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Used Car Loan: Used to buy a pre-owned vehicle.
Both loan types come with different interest rates and eligibility criteria, which we will discuss in detail.
Why Should You Opt for a Car Loan?
Taking a car loan offers several advantages:
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No need to pay upfront: You don’t have to wait years to save up.
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Flexible EMIs: You can choose a loan tenure that suits your budget.
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Ownership advantage: Unlike leasing, the car is legally yours.
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Build credit history: Timely EMI payments can improve your credit score.
Used Car Loan vs. New Car Loan
1. Interest Rates
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New Car Loan: Lower interest rates, generally starting from 8.5%.
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Used Car Loan Interest Rate: Higher due to increased risk and depreciation.
2. Loan Tenure
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New cars: Up to 7 years
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Used cars: Typically 3 to 5 years
3. Loan-to-Value Ratio (LTV)
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New car loans offer up to 100% of the car’s value.
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Used car loans offer around 75%-85% of the vehicle’s current value.
Car Loan EMI: How It Works
EMI stands for Equated Monthly Instalment. It includes both the principal and the interest component, paid monthly.
Car Loan EMI Formula:
EMI=P×R×(1+R)N(1+R)N−1EMI = \frac{P \times R \times (1 + R)^N}{(1 + R)^N – 1}
Where:
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P = Principal amount
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R = Monthly interest rate
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N = Number of months
Example:
If you take a loan of ₹6,00,000 for 5 years at 9% annual interest:
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Interest/month = 0.75% (9% ÷ 12)
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EMI = ₹12,455 approx.
You can also use an online car loan EMI calculator to get exact figures.
Eligibility Criteria for Car Loans
Each lender will have different criteria, but generally, you should:
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Be between 21 to 65 years old
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Have a minimum monthly income (e.g., ₹20,000 for salaried professionals)
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Maintain a good credit score (preferably 700+)
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Have stable employment or business proof
Documents Required
For salaried applicants:
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PAN card
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Aadhar card
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Salary slips (last 3 months)
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Bank statements (last 6 months)
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Form 16
For self-employed:
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PAN card
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Business proof
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ITR for the last 2-3 years
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Bank statements
Tips to Get the Best Car Loan Interest Rate
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Compare Across Lenders: Use aggregator websites or consult with loan experts like Jashvi Consultant.
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Check Your Credit Score: Higher scores get better deals.
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Opt for Shorter Tenure: This reduces total interest outgo.
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Make a Higher Down Payment: Reduces loan amount and risk.
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Negotiate: Many lenders are open to customizing interest rates, especially for good credit holders.
Hidden Charges to Watch Out For
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Processing fees (0.5% to 2%)
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Prepayment/Foreclosure charges
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Documentation fees
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Late payment penalties
Always read the fine print to avoid surprises later.
Car Loan vs Personal Loan: Which Is Better?
| Factor | Car Loan | Personal Loan |
|---|---|---|
| Purpose | Specifically for vehicle | Can be used for anything |
| Interest Rate | Lower (secured) | Higher (unsecured) |
| Tenure | Up to 7 years | Up to 5 years |
| Collateral | Car is collateral | No collateral needed |
If you’re planning to buy a car, a car loan is usually the better option due to lower car loan interest rates.
Refinancing and Balance Transfer
If you’re not happy with your current car interest rates, you can consider a car loan balance transfer to a bank offering a lower interest rate. It helps save on EMIs in the long run.
Car Loan for Used Cars: A Growing Trend
With the booming used car market in India, many banks now offer used car loans. But remember:
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Used car loan interest rates are higher.
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Do a thorough car valuation.
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Ensure the vehicle’s paperwork is complete.
Conclusion
A car loan makes owning a car much more accessible and budget-friendly. Whether you’re eyeing a brand-new model or a trusted used vehicle, choosing the right lender with the best car loan interest rate is key. Understand your EMI obligations, compare rates, check your eligibility, and make informed decisions.
At Jashvi Consultant, we help you compare multiple car loan rates, assist with paperwork, and ensure you drive away with the perfect deal. Reach out to us today for a smooth and stress-free experience.
FAQs on Car Loans
1. What is the average car loan interest rate in India?
It ranges from 8.50% to 10.25% for new cars and 13.00% to 17.50% for used cars, depending on your credit profile and lender.
2. How can I lower my car loan EMI?
You can lower your EMI by choosing a longer tenure, negotiating a lower interest rate, or making a higher down payment.
3. Is a used car loan more expensive than a new car loan?
Yes, used car loan interest rates are usually higher due to increased risk and car depreciation.
4. Can I prepay my car loan?
Yes, but some banks charge a prepayment or foreclosure fee. Always check the terms before signing.
5. What is the minimum credit score required for a car loan?
Most lenders prefer a score of 700 or above for competitive interest rates.