What is Car Loan?
A car loan lets you buy a private car without paying the full price at once. The lender pays the dealer or seller, you pay a down payment, and you repay the rest through equal monthly instalments. The car itself is the security, so the lender's name is recorded on the registration certificate until the loan is closed.
This page covers both new and used car loans. A new car loan is built around the dealer's invoice; a used car loan is built around the lender's valuation of the car, with extra checks on its age and papers. Electric cars have their own guide because of the different GST rate, battery warranty and charging costs. Here you will find the shared rules, the real costs and the checks that apply to any four-wheeler loan in India.
Car Loan at a glance
| Typical loan amount | New car: roughly 80% to 90% of the on-road price. Used car: roughly 60% to 85% of the lender's valuation, often ₹1 lakh to ₹25 lakh |
|---|---|
| Tenure | New car: up to 7 years, with 3 to 5 years most common. Used car: 1 to 5 years, shorter for older cars |
| Indicative interest rate | Roughly 8.5% to 16% a year for new cars and 11% to 22% for used cars, depending on lender, car and profile |
| Processing fee | Often 0.5% to 2% of the loan for new cars and 1% to 3% or a flat fee for used cars, plus GST |
| Security / collateral | The car itself, hypothecated to the lender and noted on the RC |
| Typical time to disbursal | Roughly 1 to 3 working days for a new car with a dealer invoice, and 2 to 7 working days for a used car after valuation and RC checks |
| Loan type | Secured |
Indicative ranges based on general market practice in India. Your offer will differ. Last reviewed 10 October 2026.
New car loan vs used car loan
The same lenders finance new and used cars, but they price the two differently. A new car loan is built on a dealer invoice, so the lender knows the car's value. A used car loan depends on the lender's own valuation, so you usually borrow a smaller share, repay faster and pay a higher rate in return for a lower purchase price.
| New car | Used car | |
|---|---|---|
| What sets the loan amount | The dealer's invoice and on-road price | The lender's valuation of the car |
| Typical funding | Roughly 80% to 90% of the on-road price, which can mean ₹4 lakh to ₹1 crore or more | Roughly ₹1 lakh to ₹25 lakh, usually 60% to 85% of the lender's valuation |
| Tenure | Up to 7 years, with some lenders offering shorter terms of 12 to 36 months for small loans | Commonly 1 to 5 years, and shorter when the car is older |
| Indicative interest rate | Roughly 8.5% to 13% a year for good profiles, and higher for weaker credit or thin files | Roughly 11% to 22% a year, higher than a comparable new car loan |
| Processing fee | Commonly 0.5% to 1.5% of the loan amount plus GST, and sometimes a flat fee | Often 1% to 3% of the loan amount or a flat fee, plus GST |
| Time to disbursal | Roughly 1 to 3 working days for a clean file, since the dealer invoice sets the value | Roughly 2 to 7 working days, since valuation and RC checks take time |
| Extra checks | Itemised on-road quote from the dealer | Car age limit, valuation, RC transfer, seller's loan closure, insurance transfer |
Indicative ranges based on general market practice in India. Your offer will differ; check the Key Fact Statement.
Financing a new car
A new car loan is built around the dealer's price documents. The lender looks at the ex-showroom price, registration, road tax and first-year insurance, and decides how much of that on-road figure it will fund. You pay the rest as a down payment, and the lender pays the dealer directly once the paperwork is complete.
- Get the dealer quotation. Ask the dealer for an itemised on-road price covering ex-showroom price, registration, road tax, insurance and accessories. Only the vehicle and statutory costs are normally financed.
- Compare lender quotes. Take offers from your bank, other lenders and the dealer's tie-ups. Compare the rate, fee and tenure on the Key Fact Statement, not only the advertised EMI.
Financing a used car
A used car loan is priced on what the lender thinks the car is worth today. A valuer checks the make, model, year, kilometres driven, condition and ownership history, and the lender funds a share of that figure. If the seller's price is higher than the valuation, the gap comes from your own pocket.
- Shortlist and inspect the car. Check the RC, insurance, service history and odometer. Take it to a trusted mechanic. Avoid cars with unclear ownership, pending challans or an unpaid loan.
- Valuation. The lender's valuer inspects the car and sets a value. The loan is a share of this value, so it may be lower than the price the seller has quoted.
Before you pay a private seller, check the RC, insurance and service history, confirm there is no unpaid loan on the car, and pay only a small token until your loan is sanctioned. The RC must be transferred to your name with the lender's hypothecation recorded before the loan is released.
Which costs less overall? A used car has a lower price but a higher rate. Compare the total repayable amount of both options over the time you plan to keep the car, not just the EMI.
Who should consider Car Loan?
- Salaried people who want a car but prefer to keep savings for emergencies and invest the rest.
- Self-employed professionals and business owners whose income is irregular but supported by ITR and bank statements.
- Families upgrading from a two-wheeler or an older car who can pay a down payment of 10% to 25%.
- Buyers who have not yet decided between new, used or electric and need a general view of how car finance works.
- Buyers choosing a pre-owned car who want a lower price and accept a higher rate and shorter tenure than on a new car.
Car Loan eligibility criteria
| Criterion | What lenders typically look for |
|---|---|
| Age | Most lenders ask for 21 years at application and a maximum of about 60 to 70 years at loan maturity. Self-employed applicants often have a slightly lower upper limit. |
| Income | A stable income is checked against the instalment. Many lenders want a minimum monthly income in the range of ₹20,000 to ₹25,000 for salaried applicants, though limits vary by city and car price. |
| Employment or business vintage | Salaried applicants are usually asked for 1 to 2 years of work history. Self-employed applicants are usually asked for 2 or more years of business and ITR filings. |
| Credit score | A score of 700 or above helps with approval and pricing. Lower scores may still be considered, usually at a higher rate or with a bigger down payment. |
| Residence | You must live in a city or town the lender serves, with a verifiable address and, often, a minimum period at the current residence. |
| Existing obligations | Total EMIs including the new one are usually kept within about 40% to 50% of net monthly income. Existing loans and card dues reduce the amount you can get. |
| Age of the car (used cars) | Most lenders accept cars up to roughly 8 to 10 years old at application, and require that the car is not older than about 10 to 15 years when the loan ends. Limits differ by lender. |
Documents required for Car Loan
- Identity proof such as Aadhaar, PAN, passport or voter ID
- Address proof such as Aadhaar, utility bill, rent agreement or passport
- PAN card (mandatory)
- Last 3 to 6 months of salary slips and bank statements for salaried applicants
- Last 2 years of ITR with computation, and 6 to 12 months of bank statements for self-employed applicants
- Proforma invoice or quotation from the dealer for a new car, or seller details for a used car
- Passport-size photographs and a signed application form
- For a used car: the RC, the seller's identity proof, valid insurance and PUC certificate
- For a used car: signed RC transfer forms (Form 29 and Form 30) and, if the seller had a loan on the car, the lender's NOC and closure letter
- For a new car: proof of the down payment, or the dealer's receipt for the amount already paid
How does Car Loan work, step by step?
- Choose the car and budget. Fix the car, variant and on-road price first. Decide how much down payment you can make and what instalment fits inside about 15% to 20% of your monthly income.
- Compare lender offers. Ask several lenders for the rate, processing fee, tenure and the Key Fact Statement. Compare the total cost, not just the monthly instalment.
- Apply and submit documents. Fill in the application and upload identity, address and income papers. The lender checks your credit report and may call your employer or visit your address.
- Receive sanction and sign. If approved, you get a sanction letter with the amount, rate, tenure and fees. Read it fully, then sign the loan agreement and standing instruction or e-mandate.
- Disbursal and registration. The lender pays the dealer after you pay the down payment. The car is registered with the lender's hypothecation recorded on the RC.
- Repay and close. Pay EMIs on time. After the last EMI, collect the no-objection certificate and have the hypothecation removed from the RC at the transport office.
Estimate your Car Loan EMI
Example values only. Replace them with the figures in your own offer.
Reducing-balance method. Excludes processing fees, GST, insurance and other charges.
Car Loan interest rate, fees and charges
The interest rate is only one part of what a car loan costs. Processing fees, documentation charges, insurance, and prepayment or foreclosure charges can add noticeably to the total. Ask every lender for the Key Fact Statement and the annual percentage rate, which shows the all-in yearly cost, and compare those instead of the headline rate.
- Interest
- Charged on the reducing balance in most car loans. A small change in rate over 5 to 7 years changes the total outgo by tens of thousands of rupees.
- Processing fee
- A one-time fee, usually a percentage of the loan plus GST. Some lenders reduce or waive it for certain profiles, which is a negotiating point.
- Documentation and other charges
- Stamp duty, hypothecation endorsement, and sometimes document or CIBIL charges. Ask for a complete list before sanction.
- Insurance
- Comprehensive insurance is required during the loan. Lenders may offer to add the premium to the loan, which means you pay interest on it.
- Prepayment and foreclosure
- Fixed-rate car loans may carry a charge for part or full prepayment, often a percentage of the outstanding amount. Check the exact clause and any lock-in period.
Indicative rates as of October 2026. Figures are market ranges, not offers, and are reviewed every 90 days (next review January 2027). Your rate is fixed by the lender in the sanction letter and Key Fact Statement.
Worked example: what this loan really costs
Illustration for a new hatchback with 20% down payment, using mid-range figures seen in the market as of October 2026. Your lender's Key Fact Statement will show your own numbers.
| Loan amount | ₹8,00,000 |
|---|---|
| Interest rate (reducing balance) | 9.5% a year |
| Tenure | 60 months |
| Monthly EMI | ₹16,801 |
| Total interest paid | ₹2,08,089 |
| Total repaid | ₹10,08,089 |
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1), with r the monthly rate. Processing fees, GST and insurance are extra; the annual percentage rate in the Key Fact Statement includes them. Check the figures in our Vehicle Loans EMI calculator.
Pros and cons of Car Loan
Advantages
- Lets you buy now and pay over several years
- Interest rates are lower than on an unsecured personal loan
- Clear structure with fixed EMIs that help budgeting
- Timely repayment builds your credit history
Limitations
- The car depreciates faster than the loan reduces in the early years
- Total cost is well above the sticker price once interest and fees are added
- Missed EMIs can lead to repossession and credit score damage
- On-road extras and insurance add to the amount you actually need to fund
Mistakes to avoid with Car Loan
- Choosing on EMI alone
- A long tenure gives a low EMI but a high total interest bill. Compare total repayment and keep the tenure as short as your budget comfortably allows.
- Skipping the down payment
- Financing close to the full price leaves you owing more than the car is worth for years. A down payment of 15% to 20% gives a safety buffer.
- Accepting dealer finance without comparing
- Dealer-arranged loans are convenient but may not be the cheapest. Get at least two or three other quotes before you agree.
- Ignoring the fine print
- Hidden charges, mandatory insurance bundling and prepayment clauses are often in the agreement, not the advertisement. Read the sanction letter before signing.
- Skipping the RC and loan check (used cars)
- A car with a hidden loan, challans or an unclear RC can block the transfer and your own loan. Verify the papers and ask for a closure letter before paying.
- Paying the seller before valuation (used cars)
- The lender's valuation may be lower than the asking price. Pay a small token only and release the balance after sanction.
- Financing add-ons
- Extended warranty, accessories and extra cover bundled into the loan raise your debt on items that lose value. Pay for optional extras separately where you can.
Car Loan compared with similar loans
- Car Loan vs Electric Car Loan
- An electric car loan has the same structure, but EVs carry 5% GST, some banks offer a lower green rate, and you need to weigh battery warranty, home charging and resale value. Use the electric car guide if you are choosing an EV.
- Car Loan vs Personal Loan
- A personal loan is unsecured, so rates are higher but there is no hypothecation and you can use the money for anything. A car loan costs less because the lender can repossess the car if you default.
Rules and regulations that apply to Car Loan
Since October 2024, RBI rules require lenders to give retail borrowers a Key Fact Statement before the loan is signed, showing the rate, fees, APR and total repayment. RBI does not fix a single loan-to-value cap for car loans, so funding limits are each lender's policy. Check the prepayment terms in your agreement.
Rules that protect you, with the source
- Key Fact Statement. For retail and MSME loans sanctioned from 1 October 2024, the lender must give you a KFS with the annual percentage rate and a repayment schedule before you sign, and cannot charge a fee that is not in it. RBI circular, 15 April 2024.
- Pre-payment charges. For floating-rate loans to individuals for non-business purposes sanctioned or renewed from 1 January 2026, no pre-payment or foreclosure charge can be levied. RBI Directions, 2 July 2025.
- Free credit report. Every credit bureau must give you one free full report with score each calendar year. RBI notification, 1 September 2016.
- Complaints. If the lender does not resolve a complaint within 30 days, you can go to the RBI Ombudsman free of charge. Integrated Ombudsman Scheme, 2021 · file at cms.rbi.org.in.
Car Loan: frequently asked questions
How much car loan can I get on my salary?
It depends on your income, existing EMIs and the car price. Lenders usually keep total EMIs within about 40% to 50% of net monthly income. A rough test is that the car EMI should stay near 15% to 20% of take-home pay, which helps you plan a realistic budget.
What is the maximum tenure for a car loan in India?
Most lenders offer up to 7 years for new cars, and some give 8 for certain electric models. Used cars often get shorter terms of around 3 to 5 years. A longer tenure lowers the EMI but raises the total interest you pay, so choose the shortest term you can afford.
What down payment is needed for a car loan?
Many lenders ask for 10% to 20% of the on-road price for a new car, and more for a used one. The exact figure depends on your profile and the car. Putting down more reduces the loan, the interest cost and the risk of owing more than the car's value.
Does a car loan need a guarantor?
Usually not for salaried applicants with a good credit record. A co-applicant or guarantor may be asked if your income is low, your score is weak or your profile is thin. Approval and conditions depend on the lender's own assessment of your application.
Is a fixed or floating rate better for a car loan?
Most car loans in India carry a fixed rate, so your EMI stays the same for the whole tenure. That makes budgeting easy but means you may not benefit from falling market rates. Ask the lender which type applies and what it costs to close early.
Can I get a car loan with a CIBIL score below 700?
Yes, it may be possible, but terms are usually less favourable. Expect a higher rate, a larger down payment or a shorter tenure. Lenders look at income, job stability and existing debt too. Improving your score before applying can reduce the cost.
Who owns the car while the loan is running?
You are the registered owner, but the lender's hypothecation is recorded on the RC, so you cannot sell the car without clearing the loan. After you pay the last EMI, you collect a no-objection certificate and get the hypothecation removed from the RC.
How much loan can I get on the on-road price of a new car?
Many lenders fund roughly 80% to 90% of the on-road price, and some go higher for strong profiles, though that is a lender decision. The balance is your down payment. A higher loan share raises your EMI and the time you owe more than the car's resale value.
Can I finance insurance and registration in a new car loan?
Often yes, because the on-road price includes registration, road tax and first-year insurance, and lenders usually fund a percentage of that figure. Financing insurance means paying interest on it, so paying it from your own funds can lower the total cost if you can afford to.
Should I take the dealer's loan or go directly to a lender?
Compare both. Dealer-arranged loans are convenient and sometimes carry promotional rates, but they may include extra fees or add-ons. Get at least two direct quotes and compare the APR and total repayment on each Key Fact Statement before you decide.
What happens if I want to close a new car loan early?
You can usually ask for foreclosure, but a fixed-rate car loan may charge a percentage of the outstanding amount, and some have a lock-in period. Check the clause in your agreement. After closure, collect the no-objection certificate and remove hypothecation from the RC.
What is the maximum age of a used car for a loan?
It varies by lender, but many accept cars up to about 8 to 10 years old at the time of application and require that the car does not exceed roughly 10 to 15 years at loan maturity. Older or heavily used cars may be declined or offered a short tenure.
How much can I borrow against a used car?
Typically about 60% to 85% of the lender's valuation, not the seller's price. A newer car with fewer kilometres usually gets a higher share. If the seller asks more than the valuation, you pay the difference along with your down payment.
Is the interest rate on a used car loan higher than a new car loan?
Usually yes. Used car loans often cost several percentage points more because the car is older, its value is harder to predict and tenures are shorter. The exact rate depends on the lender, the car's age and your credit profile.
Can I buy a used car from a private seller with a loan?
Many lenders allow it, but they ask for the seller's papers, an RC transfer and proof that no loan is pending on the car. Some lenders only finance dealers. Check this before you agree on the price with a private seller.
What tenure can I get on a used car loan?
Usually 1 to 5 years, and the older the car, the shorter the tenure. The lender sets a maximum age at loan end, which can cut the term. A shorter tenure raises your EMI but lowers the total interest you pay.
Can I get a loan against a car I already own?
Some lenders offer a loan against an existing car, funding a share of its valuation without a purchase. This is a different product with its own rate and charges. It can work for a car with clean papers, but you must be sure you can repay.
Car Loan by lender and by brand
Published rates, tenure and fees from each lender's own website, and finance options for each vehicle brand.
By lender
Used car loans by lender
By brand
Car Loan in your city
Local guidance, documents and an EMI calculator for 1461 cities across India.
Official sources and further reading
These guides are written from Reserve Bank of India rules and official scheme pages. Rules, rates and scheme terms change, so check the current position on these sites and in your lender's Key Fact Statement before you apply.
- RBI: Key Facts Statement (KFS) for loans and advances. The Reserve Bank of India notification that tells lenders to give every borrower a plain-language statement of the full cost of a loan.
- RBI Complaint Management System. Where to take a complaint against a bank, NBFC or other regulated lender if the lender does not resolve it.
- RBI (Pre-payment Charges on Loans) Directions, 2025. Bars pre-payment charges on floating-rate loans taken by individuals for non-business purposes, for loans sanctioned or renewed from 1 January 2026.
- Reserve Bank - Integrated Ombudsman Scheme, 2021. The single complaint scheme for customers of banks, NBFCs and other RBI-regulated lenders.
- RBI: Free Annual Credit Report to Individuals. Credit bureaus must give you one free full credit report with score every calendar year.
- RBI Financial Education. Consumer guidance from the Reserve Bank of India on borrowing, fraud and your rights as a customer.
Edited by Hemant Kumar. Rates on this site are indicative ranges, not offers.
This page is general information, not personalised financial advice and not an offer. Rates and terms shown are indicative and vary by lender and applicant. Verify with the lender and read the Key Fact Statement before you sign.