Tuesday, August 19, 2025

Car Loan in India (2025 Guide) – Eligibility, EMI, Interest Rates & Documents

Car Loan in India (2025 Guide) – Eligibility, Documents, EMI & Interest Rates

Car Loan in India (2025 Guide)

Buying a car is a dream for many Indians, but paying the entire amount upfront is not always possible. A car loan makes it easier by providing financial support so that you can purchase a new or used car without heavy financial burden. In this detailed guide, we will cover everything about Car Loan in India 2025 including eligibility, documents required, types of car loans, interest rates, EMI calculation, step-by-step loan process, pros & cons, and FAQs.

What is a Car Loan?

A car loan is a secured loan offered by banks, NBFCs, or other financial institutions where the car itself acts as collateral. Lenders usually finance 80%–100% of the car’s on-road price, and the borrower repays the loan in EMIs (Equated Monthly Installments) over a chosen tenure.

Eligibility for Car Loan in India

Age Criteria

The minimum age to apply for a car loan is 21 years and the maximum age at loan maturity is 65 years.

Employment & Income

Salaried individuals must earn at least ₹15,000 – ₹25,000 per month.
Self-employed and business professionals should have regular income proof through ITR or business statements.

Credit Score

A credit score of 700 or above is considered good. It improves approval chances and helps in securing lower interest rates.

Documents Required for Car Loan

Identity Proof

Aadhaar, Passport, Voter ID, Driving Licence

Address Proof

Aadhaar, Passport, Utility bills, Ration Card

Income Proof

Latest 3 months salary slips (for salaried individuals)
6 months bank statement
ITR of last 2 years (for self-employed)

Types of Car Loans in India

1. New Car Loan

Loan provided to purchase a brand new car from a dealer. Interest rates are usually lower compared to used car loans.

2. Used Car Loan

Loan for purchasing pre-owned or second-hand cars. Interest rates are slightly higher due to higher risk.

3. Car Refinance Loan

If you already own a car and need funds, you can avail a refinance loan by mortgaging your vehicle.

4. Top-up Car Loan

Extra loan amount offered on top of an existing car loan, useful if you need additional funds.

Car Loan Interest Rates in India (2025)

Public Sector Banks: 8% – 10% p.a.
Private Banks: 9% – 12% p.a.
NBFCs: 10% – 14% p.a.

Car Loan EMI Calculation

Factors Affecting EMI

Loan Amount
Interest Rate
Tenure (1–7 years)

Example

If you take a loan of ₹10,00,000 at 9% interest for 5 years, your approximate EMI will be ₹20,760 per month.

Step-by-Step Car Loan Process

Step 1: Compare Loan Offers

Check interest rates, processing fees, and loan terms of different banks.

Step 2: Submit Application

Fill out the application form with personal and financial details.

Step 3: Document Verification

The bank verifies your documents like ID proof, income proof, and car quotation.

Step 4: Loan Approval

If eligible, the bank approves the loan and issues a sanction letter.

Step 5: Loan Disbursement

The loan amount is paid directly to the car dealer, and you can drive away your new car.

Car Loan vs Personal Loan – Which is Better?

Car Loan

Secured loan (car as collateral)
Lower interest rates (8–12%)
Specific use – only for car purchase

Personal Loan

Unsecured loan (no collateral)
Higher interest rates (12–18%)
Can be used for any purpose, including car purchase

Tips to Reduce Car Loan EMI

Choose a longer tenure for lower EMIs (but total interest will increase).
Make a higher down payment to reduce loan amount.
Negotiate with the bank for better rates.
Maintain a good credit score.

Common Mistakes to Avoid While Taking a Car Loan

Not checking the total cost of loan (including hidden charges).
Choosing very long tenure which increases total interest burden.
Ignoring foreclosure or prepayment rules.
Not comparing offers from multiple lenders.

Advantages of Taking a Car Loan

Buy a car without paying the full amount upfront.
Flexible repayment tenure from 1–7 years.
Attractive interest rates.
Tax benefits for business owners under specific conditions.

FAQs on Car Loan in India

1. Can I get 100% finance on a car loan?

Some banks offer 100% finance, but generally, 85–90% is common.

2. What is the maximum tenure for a car loan?

Most banks offer tenure from 1 to 7 years.

3. Do I need a guarantor for a car loan?

Not usually, but if your credit score is low, the bank may ask for one.

4. Can I prepay or foreclose my car loan?

Yes, but some banks charge prepayment penalties. Check terms before signing.

5. Is CIBIL score important for car loan approval?

Yes, a score of 700+ improves approval chances and gives better interest rates.

6. Can I get a car loan for a used car?

Yes, most banks and NBFCs provide used car loans, but interest rates are slightly higher.

7. Can NRIs apply for a car loan in India?

Yes, but conditions vary depending on the bank. Most require an Indian co-applicant.

Tuesday, August 19, 2025