A car loan is likely the biggest borrowing most people take after a home loan, and a one-percent difference in interest or an extra two years of tenure can change the total you repay by lakhs. This guide explains how to compare offers sensibly. Rates quoted are indicative and change frequently, so confirm them with the lender before applying.
What Rates Look Like Now
| Lender | New-car loan rate (approximate) |
|---|---|
| Union Bank of India | 7.40% to 9.45% |
| Central Bank of India | 7.60% to 9.20% |
| Indian Overseas Bank | 7.60% to 8.60% |
| Bank of Baroda | 8.50% to 11.20% |
| State Bank of India | 8.70% to 9.85% |
| Canara Bank | 8.60% to 11.45% |
| Punjab National Bank | 8.60% to 10.70% |
| HDFC Bank | from about 8.15% |
| ICICI Bank | from about 8.5% |
| Axis Bank | 8.95% to 11.75% |
Used-car loans are costlier, roughly 10.5 to 15.6 percent, and are generally available only for cars up to about three years old. Your actual rate depends on your credit score, income, loan amount, tenure and whether the rate is fixed or floating. The RBI's repo rate also feeds into floating-rate pricing.
What a Loan Really Costs: Worked Examples
| Loan | Monthly EMI | Total interest |
|---|---|---|
| Rs 8 lakh at 8.7%, 36 months | Rs 25,328 | Rs 1,11,816 |
| Rs 8 lakh at 8.7%, 60 months | Rs 16,490 | Rs 1,89,427 |
| Rs 8 lakh at 8.7%, 84 months | Rs 12,750 | Rs 2,70,983 |
| Rs 8 lakh at 10.5%, 60 months | Rs 17,195 | Rs 2,31,707 |
| Rs 10 lakh at 9%, 60 months | Rs 20,758 | Rs 2,45,501 |
Stretching from 60 to 84 months cuts the EMI by about Rs 3,700 but adds roughly Rs 81,000 in interest. A shorter tenure is almost always cheaper overall; pick the shortest one your monthly budget can handle comfortably.
Step-by-Step: How to Choose
- Check your credit score first. A score above about 750 usually earns the best rate.
- Decide your down payment. Putting down 15 to 20 percent lowers the interest bill and the EMI.
- Compare at least three lenders, including your own bank, since existing customers often get special offers.
- Compare the full cost, not only the rate: processing fee, prepayment charges and insurance bundling.
- Keep the EMI within about 15 percent of monthly take-home pay.
Fees and Fine Print
Processing fees vary widely, from around Rs 1,500 plus GST at some public banks to Rs 3,500 or more at some private lenders. Ask about foreclosure and part-prepayment charges, the rate-reset terms on floating loans, and whether the dealer is pushing an in-house lender with a higher rate. Some lenders finance up to 100 percent of the on-road price, which is convenient but raises your total interest cost.
Dealer-arranged loans are convenient but not always cheapest. Get a pre-approved offer from your own bank first, then let the dealer try to beat it.
Documents Usually Needed
- Identity and address proof
- Income proof: recent salary slips or income tax returns
- Bank statements for the last six months
- The car quotation or proforma invoice
Common Mistakes
- Choosing the longest tenure to get the lowest EMI
- Ignoring the fees and insurance add-ons in the loan
- Not negotiating the car price separately from the loan
- Taking a loan without checking prepayment rules