Car Loan — Interest Rate, Eligibility, EMI, Documents & Complete Process
This page primarily covers a standard car loan for purchase of a new car,
including interest rates, eligibility, margin, EMI, documents, sanction
process, KFS, hypothecation, insurance, prepayment and closure.
Banks also finance electric vehicles (EVs), used cars and two-wheelers.
These loans have several features and processes in common with a standard
Car Loan, which are covered in the guide below. Their distinct features
are explained separately in brief towards the end of this page.
Important:
Car-loan eligibility, interest rate, margin, tenure and other terms vary
between lenders and borrowers. A lender’s lowest advertised rate or maximum
financing offer should not be assumed to be the rate or loan amount that
will necessarily be available to you.
Current Car Loan Interest Rates
Car-loan rates can vary considerably between lenders and may also depend on
your credit profile, income, loan amount, repayment tenure, banking
relationship and other factors.
COMPARE CURRENT RATES
Compare Car Loan Interest Rates
Bankbazaar currently provides a comparison of indicative car-loan rates
across major banks and other lenders.
External website. BankBodh is not affiliated with BankBazaar.
Before you apply:
Comparison websites are useful for shortlisting lenders, but always verify
the applicable interest rate, fees, margin, repayment terms and eligibility
directly with the lender before taking a decision.
How Much Car Loan Can You Get?
Car-loan eligibility is not decided only by the price of the car.
The lender assesses your income, existing financial commitments,
repayment capacity, credit profile and the proposed loan tenure before
deciding the amount it is willing to lend.
Income
Salary, business or professional income and its stability are
considered while assessing repayment capacity.
Existing EMIs
Existing loans and other financial commitments reduce the amount
available for servicing the proposed car-loan EMI.
Age & Tenure
Your age and the lender’s repayment norms can affect the maximum
tenure and consequently the eligible loan amount.
Credit Profile
Credit history and credit score can influence both loan eligibility
and the interest rate offered.
Employment / Business
Stability and continuity of employment, profession or business may
form part of the lender’s assessment.
Co-applicant
Where permitted by the lender, an eligible co-applicant’s income may
be considered while assessing the loan.
How Much of the Car Price Will the Bank Finance?
The amount a lender is willing to finance depends not only on your
repayment capacity but also on the lender’s vehicle-financing policy.
Depending on the lender and scheme, finance may be calculated with
reference to the ex-showroom price or
on-road price.
Ex-showroom Price
Broadly, this is the vehicle price before registration,
road tax and insurance are added.
On-road Price
The on-road price includes the ex-showroom price together with
RTO registration and road tax and insurance.
Margin
Margin is the portion of the vehicle cost that you have to arrange
from your own funds.
Banks generally ask for minimum 15% margin for on road price and may
finance 100% of ex showroom price.
Use the calculator below to estimate your monthly EMI, total interest
and approximate total repayment for the selected loan amount, interest
rate and repayment period.
Calculate the approximate monthly EMI, total interest and total
repayment for a loan based on the loan amount, interest rate
and repayment period.
The repayment schedule is grouped by calendar year. The first and last
calendar years may therefore be part years. This schedule assumes regular
EMI repayment begins in the current calendar month and that no moratorium,
deferred-repayment or pre-EMI period applies. Where repayment starts later,
or interest is serviced or accrued during a moratorium, the actual schedule
may differ.
Calendar Year
EMIs
Opening Balance
Principal Repaid
Interest Paid
Total Paid
Closing Balance
How Is EMI Calculated?
EMI stands for Equated Monthly Instalment.
In a standard reducing-balance loan, each EMI contains both
principal and interest.
During the initial part of the loan, a larger portion of the EMI
generally goes towards interest. As the outstanding loan balance
reduces, the interest component falls and a larger portion goes
towards principal.
EMI depends mainly on three things:
Loan amount + Interest rate + Repayment period
What Happens If the Interest Rate Changes?
For a floating-rate loan, the interest rate may change during the
loan period. Depending on the lender and loan terms, this may result
in a change in the EMI, the remaining tenure, or both.
Important:
This calculator provides an indicative estimate based on the
information entered. Actual bank calculations may differ because
of factors such as disbursement dates, interest-reset dates,
rounding, moratoriums, fees, repayment frequency and
product-specific terms.
Documents Commonly Required for a Car Loan
The exact documents depend on the lender, applicant profile and loan
scheme. The following are commonly required when applying for a car loan.
KYC & Personal
Identity and address documents
PAN or other applicable tax-related document
Photograph and application-related declarations
Co-applicant documents, where applicable
Salaried Applicants
Recent salary slips
Bank account statements
Form 16 / income-tax documents, as required
Employment-related documents where required
Business / Self-employed / Professional
Income-tax returns
Financial statements, where applicable
Bank statements
Business / professional proof and related documents
Vehicle & Purchase
Dealer quotation / pro-forma invoice
Vehicle details required by the lender
Proof of margin contribution, where required
Registration and insurance-related documents at the applicable stage
Document requirements can vary.
The lender may ask for additional documents depending on your income
profile, banking relationship, credit assessment and the particular
vehicle-loan scheme.
Complete Car Loan Process
1
Choose the Car & Obtain a Quotation
Finalise the vehicle and obtain the dealer’s quotation or pro-forma
invoice showing the vehicle and applicable price details.
2
Loan Application
Submit the application along with KYC, income, bank statements and
other documents required by the lender.
3
Credit & Repayment-Capacity Assessment
The lender evaluates your income, existing liabilities, credit
history, proposed EMI and other eligibility factors.
4
Loan Sanction
If approved, the lender communicates the sanctioned loan amount,
interest rate, tenure and other important terms and conditions.
5
Review the Sanction Terms & KFS
Before accepting and executing the loan documents, review the
sanctioned terms and the Key Facts Statement carefully.
6
Margin & Documentation
Complete the required loan documentation and arrange your margin
contribution and other amounts payable from your own funds.
7
Disbursement
After applicable conditions are completed, the lender releases the
loan amount in accordance with its disbursement procedure,
generally in connection with payment for the vehicle.
8
Registration & Hypothecation
The vehicle is registered in the borrower’s name and the lender’s
hypothecation interest is recorded in the vehicle registration in
accordance with the applicable process.
Before Signing — Read the Sanction Letter & KFS
Once the loan is sanctioned, do not look only at the EMI. Check the
sanctioned terms and the Key Facts Statement before accepting the loan.
Sanctioned loan amount
Interest rate
Fixed / floating rate
APR
EMI
Loan tenure
Processing charges
Other applicable charges
Penal charges
Repayment schedule
Prepayment terms
Other important conditions
Why check APR?
At this stage, APR helps you understand the annual cost of the sanctioned
loan by taking into account the interest rate and applicable charges
forming part of the cost of credit. Check it against the terms you
expected when you applied.
Hypothecation — What Does It Mean?
When a car is purchased with a car loan, the vehicle is generally
hypothecated to the lender. The car remains registered in the borrower’s
name, while the lender’s financial interest is recorded in the vehicle’s
registration until the hypothecation is terminated.
You Remain the Registered Owner
The vehicle is normally registered in your name even though it has
been financed by the lender.
Lender’s Interest is Recorded
The hypothecation in favour of the financier is recorded in the
vehicle registration while the financing arrangement continues.
Transfer is Restricted
A vehicle subject to an existing hypothecation agreement cannot
ordinarily be transferred without the required consent and completion
of the applicable formalities.
Insurance of a Financed Car
The borrower should keep the vehicle adequately insured during the loan
period, renew the insurance on time and provide the renewed policy/copy
to the Bank where required.
If the insurance is allowed to lapse and the vehicle is subsequently
damaged, stolen or involved in an accident, the resulting financial
loss or liability may have to be borne by the borrower while the
car-loan liability continues.
Third-party motor insurance is mandatory under law. The insurance
requirements under the loan may also extend beyond the statutory
minimum cover.
Practical Tip:
When renewing the insurance, preferably check whether the insurer has a
cashless/network arrangement with the authorised service centre or
workshop where you are likely to get the vehicle repaired. This can
make the claim and repair process smoother if an insured loss occurs.
RBI / REGULATORY
Important Car Loan Borrower Protections
KFS & APR
Know the Cost Before You Sign
For applicable retail term loans, the Key Facts Statement provides
important information about the sanctioned loan, including the APR,
applicable charges and repayment schedule. Review it before executing
the loan contract.
PREPAYMENT
Floating-rate Personal Car Loan
For a floating-rate loan granted to an individual for a non-business
purpose, applicable RBI directions prohibit prepayment charges.
PENAL CHARGES
Not Penal Interest
A penalty for non-compliance with material loan terms is to be treated
as a penal charge rather than being added to the contracted interest
rate as penal interest. Penal charges themselves cannot be
capitalised for charging further interest.
RECOVERY
No Harassment or Intimidation
RBI requirements do not permit lenders or their recovery agents to
use intimidation, harassment, threatening or anonymous calls, public
humiliation or other prohibited recovery practices.
Prepayment / Foreclosure — Check Whether Your Loan is Fixed or Floating
For loans sanctioned or renewed on or after
1 January 2026, the applicable RBI framework prohibits
prepayment charges on
floating-rate loans to individuals for non-business purposes.
The protection applies to part or full prepayment, irrespective of the
source of funds used for prepayment and without a minimum lock-in period.
Do not assume the same rule applies to every car loan.
If your car loan is fixed-rate, or has another interest-rate structure,
check the lender’s disclosed prepayment terms, sanction letter, loan
agreement and KFS before foreclosing or making a large part-payment.
After the Last EMI — Don’t Stop at “Loan Closed”
Repayment of the final EMI does not by itself remove the lender’s
hypothecation entry from the vehicle registration. Complete the
post-closure formalities and preserve the relevant records.
✓
Obtain confirmation that the car-loan account has been fully closed.
✓
Collect the lender’s NOC / due-clearance and applicable closure documents.
✓
Obtain / complete Form 35 or the applicable
hypothecation-termination process.
✓
Apply for removal of the financier’s hypothecation from the RC.
✓
Complete any required update with the insurer regarding termination
of the financier’s interest.
✓
Check your credit report after a reasonable period to ensure the
loan is reported as closed correctly.
✓
Preserve the closure letter, NOC and related records.
Removing Hypothecation from the RC
Under the motor-vehicle registration framework, termination of a
hire-purchase, lease or hypothecation agreement is notified to the
registering authority through Form 35. The applicable
process involves the registered owner and financier and may require the
lender’s due-clearance/NOC and other prescribed documents.
Requirements and online/offline procedures can vary by State or
registering authority, so check the current procedure applicable to
your vehicle.
Having a Problem With Your Car Loan?
If the issue cannot be resolved through the branch, loan-processing
centre or servicing channel, use the lender’s formal
grievance-redressal mechanism and escalate the complaint where necessary.
EV, used-car and two-wheeler loans broadly follow the same loan journey
explained above. The main differences are usually in the interest rate,
margin, amount financed, vehicle-related eligibility and repayment tenure.
EV Loan
Depending on the lender and scheme, an EV loan may offer a
concessional interest rate, lower margin and/or different
repayment tenure compared with a standard car loan.
Used Car Loan
For a used car, the lender generally considers the
age, condition and assessed value of the vehicle,
in addition to the borrower’s repayment capacity.
Compared with a new-car loan, the applicable
interest rate and margin are usually higher.
The maximum loan amount and repayment tenure may also differ.
Two-Wheeler Loan
Two-wheeler loans generally involve a
smaller loan amount and shorter repayment tenure
than car loans.
The applicable interest rate, margin and other terms
depend on the lender and scheme.
Frequently Asked Questions
What is the difference between on-road price and ex-showroom price?
The ex-showroom price is broadly the vehicle price
before registration, road tax and insurance are added.
No. A good credit score can help, but the lender also considers income,
existing liabilities, repayment capacity, employment/business profile
and its own lending policy.
Is the lowest advertised interest rate available to everyone?
No. The rate actually offered can depend on the lender’s pricing
policy, credit profile, loan amount, tenure, customer relationship and
other applicable factors.
What should I check after the car loan is sanctioned?
Check the sanctioned amount, interest rate, whether the rate is fixed
or floating, APR, EMI, tenure, charges, penal charges, repayment
schedule, prepayment conditions and other important terms in the
sanction letter and KFS.
Can I prepay or foreclose my car loan?
Yes, subject to the applicable terms. For certain floating-rate loans
to individuals for non-business purposes, RBI directions prohibit
prepayment charges. For fixed-rate or other loans, check the KFS,
sanction terms and loan agreement.
What happens if I miss a car-loan EMI?
The EMI becomes overdue and applicable penal charges may be levied in
accordance with the loan terms. Continued or repeated defaults can also
affect your credit record. Contact the lender and regularise the
overdue amount as early as possible.
Can the lender repossess my car if I miss an EMI?
Repossession is not automatic merely because one EMI is
missed. Where repossession becomes applicable under the loan
agreement, the lender must follow the applicable contractual, legal
and regulatory process. Recovery cannot involve harassment or
intimidation.
Is hypothecation removed automatically after I repay the loan?
No. After closure, obtain the required documents from the lender and
complete the applicable process with the registering authority for
removal of the hypothecation entry from the RC.
What should I preserve after closing the car loan?
Keep the loan-closure confirmation, NOC/due-clearance, Form 35 or
related documents and proof of removal of hypothecation. It is also
sensible to verify after a reasonable period that the loan is correctly
reported as closed in your credit report.
References / Sources
Key regulatory and official sources used for this guide:
Banking rules, contact details and procedures can change.
If you notice something outdated, incorrect, unclear or missing,
or have an idea that could improve BankBodh, please let us know.
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