Vehicle Finance · Secured Credit · Auto Loan
Car Loan
A secured vehicle loan that helps eligible borrowers finance the purchase of a new or pre-owned car through manageable EMIs.
Purpose
Vehicle purchase
Security
Vehicle hypothecation
Repayment
Principal + interest
Tenure
Depends on lender
Rate
Fixed / Floating
Overview
What is a Car Loan / Auto Loan?
A car loan, also known as an auto loan or vehicle loan, is a secured loan offered by banks, NBFCs and other eligible lenders to finance the purchase of a new or pre-owned car.
The borrower repays the loan through regular Equated Monthly Instalments (EMIs) over an agreed tenure. The vehicle is generally hypothecated to the lender until the loan is repaid and the lender's charge is removed.
The loan amount, interest rate, tenure and other terms depend on the lender, borrower's credit profile, income, vehicle type and other underwriting factors.
Loan Types
Types of Car Loans
New Car Loan
Finance for purchasing a brand-new vehicle.
Used Car Loan
Finance for purchasing an eligible pre-owned vehicle.
Electric Vehicle Loan
Financing for eligible electric vehicles, subject to lender offerings.
Vehicle Refinancing
Refinancing or loan against an existing vehicle where offered.
Eligibility
Eligibility Criteria
Car-loan eligibility varies from one lender to another. There is no single age, income or credit-score requirement applicable across all lenders.
Age
Minimum and maximum age limits vary according to the lender and borrower profile.
Income & Repayment Capacity
Salaried, self-employed, professional, pensioner and business applicants may have different criteria.
Employment / Business Stability
Lenders may consider continuity of employment or business operations.
Credit History
A healthy credit history and good repayment record can improve approval chances and loan terms.
Existing Obligations
Existing EMIs, credit-card dues and other liabilities may affect the eligible loan amount.
Vehicle Type
Eligibility and financing terms may differ for new, used and electric vehicles.
Loan-to-Value
The amount financed may depend on vehicle price and the lender's financing policy.
Loan Amount
How Much Car Loan Can You Get?
The loan amount depends on the vehicle cost, borrower's income, repayment capacity, credit profile, existing obligations, vehicle type and age, down payment and lender financing policy.
Vehicle Cost
On-road or eligible vehicle cost.
Income
Borrower's income and repayment capacity.
Credit Profile
Credit history and repayment behaviour.
Existing Liabilities
Current EMIs and other financial obligations.
Vehicle Age
Type and age of the vehicle.
Down Payment
Amount contributed by the borrower.
Some lenders may offer financing up to 100% of the eligible on-road cost for certain new-car loans and eligible borrowers. However, borrowers should not assume that every lender will finance the full vehicle cost.
Documentation
Required Documents
Documentation varies by lender and borrower category. Commonly requested documents include the following.
Identity & Address Proof
For Salaried Applicants
For Self-Employed Applicants
Vehicle Documents
The exact documentation requirements should be confirmed with the lender before applying.
Application
How to Apply for a Car Loan?
Car loans can generally be applied for through banks, NBFCs, authorised vehicle dealerships, official lender websites and mobile applications, and regulated digital lending channels.
Check Eligibility
Check eligibility and estimated EMI affordability.
Compare Lenders
Compare loan offers from different lenders.
Select Vehicle
Select the vehicle and obtain a quotation or proforma invoice.
Submit Application
Submit the loan application and required documents.
Verification
Complete income, credit and other required verification.
Loan Approval
Receive approval or sanction if eligible.
Review Terms
Review the sanction letter, interest rate, tenure and charges.
Disbursement
Complete documentation and receive loan disbursement.
Online applications and digital KYC may make the process faster, but final approval remains subject to the lender's credit assessment and documentation requirements.
Pricing
Car Loan Interest Rates
Car-loan interest rates vary based on the borrower's credit profile, income, vehicle type, loan amount, tenure, customer relationship and the lender's current pricing policy.
Credit Profile
Your credit history and repayment record.
Income
Income and repayment capacity.
Vehicle Type
New or used vehicle and its category.
Loan Amount
Amount being financed.
Loan Tenure
Duration of the loan.
Lender Policy
The lender's current pricing policy.
Current Market Examples
SBI
8.70% – 9.85%
Broadly listed for new car loans depending on borrower profile and other factors.
ICICI Bank
From 8.40%
Starting rate for eligible new-car categories; used-car rates start higher.
HDFC Bank
7.60% – 14.00%
Disclosed new auto-loan range for April–June 2026.
Actual rates offered to an applicant can differ significantly from advertised starting rates. Always check the lender's latest interest-rate schedule and Annual Percentage Rate (APR).
Comparison
New Car vs. Used Car Loan
| Feature | New Car Loan | Used Car Loan |
|---|---|---|
| Vehicle | Brand-new vehicle | Pre-owned vehicle |
| Interest Rate | Often comparatively lower | Often comparatively higher |
| Loan Amount | May offer higher financing percentages | Depends on vehicle age and valuation |
| Documentation | Invoice and dealer documents | Additional ownership and valuation documents may be required |
| Vehicle Age | New | Lenders may impose limits on vehicle age |
| Tenure | Generally depends on lender policy | May be shorter depending on vehicle age |
Used-car loan rates can be significantly higher than new-car loan rates. Vehicle age, valuation and ownership documentation can also affect eligibility and financing.
Interest Structure
Fixed vs. Floating Interest Rate
Fixed Interest Rate
The interest rate generally remains unchanged according to the terms specified in the loan agreement.
Floating Interest Rate
Where offered, the interest rate may change according to the applicable benchmark and loan terms.
Borrowers should always verify whether the quoted rate is fixed or floating before signing the loan agreement.
Costs
Processing Fees & Other Charges
Borrowers should review the Key Fact Statement, sanction letter, loan agreement, APR disclosure and schedule of charges before accepting the loan.
Upfront Cost
Down Payment
A down payment may be required depending on the vehicle price, lender financing policy, borrower's credit profile, vehicle type and loan-to-value ratio.
Higher Down Payment
Keep Emergency Savings
Avoid exhausting your emergency savings solely to make a larger down payment.
Even where a large portion of the vehicle price is financed, budget separately for insurance, registration, maintenance, fuel or charging costs and other ownership expenses.
Repayment
Loan Tenure & EMI
Car-loan repayment tenure varies by lender and loan product. Choosing a longer tenure can reduce the monthly EMI and improve short-term affordability.
Longer Tenure Can
• Reduce monthly EMI
• Improve short-term affordability
But It Can Also
• Increase total interest paid
• Keep the borrower in debt longer
• Increase overall vehicle ownership cost
Compare both the EMI and the total interest payable rather than selecting a loan solely on the basis of the lowest monthly EMI.
Early Repayment
Can You Prepay or Foreclose a Car Loan?
Many lenders allow borrowers to make part-prepayments, full prepayments or foreclosure/premature closure.
Part-prepayment
Full prepayment
Foreclosure
Charges and Conditions May Depend On
Do not assume that car-loan prepayment is always free. Always check the loan agreement and the lender's latest prepayment policy.
Before Borrowing
Things to Consider Before Taking a Car Loan
EMI Affordability
Your EMI should fit comfortably within your budget after accounting for existing EMIs, household expenses, insurance, fuel or charging costs, maintenance and emergency savings.
Total Cost of the Loan
Compare interest rate, APR, processing fees, documentation charges, prepayment charges and total interest payable.
Down Payment
A higher down payment may reduce the loan amount, EMI and total interest payable. Avoid exhausting your emergency savings solely for a larger down payment.
New vs. Used Car
Used cars may have higher interest rates, different loan-to-value limits, additional valuation requirements and vehicle-age restrictions.
Loan Tenure
Choose a tenure based on affordability and total cost. A very long tenure may increase the total interest paid.
Insurance & Additional Products
Carefully review insurance, extended warranty, loan-protection products and other add-ons. Understand their cost and whether they are optional or required.
Frequently Asked Questions
Car Loan FAQs
How much car loan can I get?+
The eligible loan amount depends on your income, repayment capacity, credit profile, existing liabilities, vehicle value, down payment and the lender's policies.
What is the repayment tenure for a car loan?+
The tenure varies depending on the lender, vehicle type and borrower profile. Always compare the EMI with the total interest payable before choosing a longer tenure.
Can I repay the car loan before the tenure ends?+
Yes. Many lenders allow part-prepayment or foreclosure, but charges and conditions may apply depending on the loan terms.
Is a down payment necessary?+
Not always. Some lenders may offer high-percentage or up to 100% financing for eligible borrowers and vehicles. Eligibility and the financed amount depend on the lender's policy.
Can I get a car loan with a low credit score?+
It may still be possible in some cases, but approval, interest rate, loan amount or other conditions may be less favourable. A stronger credit profile can improve access to better loan terms.
What happens if I miss an EMI?+
A missed or delayed EMI may result in overdue charges or other contractual charges and can negatively affect your credit history. Continued default may result in recovery action according to the loan agreement and applicable law.
Can I transfer my existing car loan to another lender?+
Some lenders offer refinancing or loan-transfer options, subject to eligibility, vehicle valuation, outstanding loan amount and the new lender's approval.
Conclusion
Choose a Car Loan Based on Total Cost
A car loan can help make vehicle ownership more affordable by allowing you to spread the purchase cost over time. However, the right loan should be selected based on total borrowing cost, EMI affordability, interest-rate structure, loan tenure, down payment and applicable charges.
Before signing, carefully review the sanction letter, Key Fact Statement, APR, repayment schedule, prepayment conditions, hypothecation terms and all applicable fees and charges.
Interest rates and lender policies can change. Always verify the latest information directly with the chosen lender before making a borrowing decision.
Disclaimer
Car-loan eligibility, interest rates, financing percentages, charges, tenure, prepayment conditions and other terms vary by lender, borrower profile, vehicle and applicable regulations. Rates and lender policies may change over time. Applicants should verify the latest terms directly with the concerned lender before making financial decisions.
Need help understanding car loans?
Talk to a Wealth Doctor — free advice.