Car Loan Interest Rates

New Car Loan vs Used Car Loan – Interest Rates, Fees & Features

Compare Car Loan Interest Rates from All Banks

The following are the car loan interest rates that is been followed at leading banks. They are:

Disclaimer: The rates, prices and other critical information are as of the date this page was created and are subject to change. Contact the relevant authority or refer to their official website for exact information.

Factors That Influence Car Loan Interest Rates

Purchasing a car with loan aid is a financial commitment that an individual is likely to make. Whether you want to go in for a brand new model or a second-hand model, you need to have a clear understanding of the factors that are going to influence your car interest rates. One must keep in mind these car loan interest rates vary widely between banks and NBFCs. Some of these factors are discussed below:

Credit Impact

Credit Score is one of the pivotal factors that will determine your car loan interest rate. This score is a determinant of your disciplined financial behavior. The higher the score is the lender will have much more belief in you when granting loans. This creditworthiness will assess the risk associated with lending money.

Loan Term

The duration of your car loan will significantly affect your car loan interest rates. Shorter the loan tenure, lower is the interest but with high monthly EMIs. Longer the loan tenure, higher is the interest but with a low monthly EMIs. Based on their monthly earnings, customers need to decide whether they want to go in for a shorter tenure or a longer tenure.

Down Payment Size

The Down Payment Amount will also influence the interest rate set by the lender against your car loans. A higher down payment amount will translate as a lower perceive risk for the lender leading to a lower rate of interest. Similarly a lower down payment will result into a higher rate of interest.

Income and Job Stability

Your salary and job stability has a hand in your car loan interest rate. Having a regular income with a stable job will help you earn the trust of the lender. This will result in a lower rate of interest on your car loan as you belong to the customers with stable income and positive employment track.

Loan Tenure

Longer tenure of car loans tend to have a higher interest rate. So go in for the loan that has the best interest rates.

Relationship with Lender

If you are an existing customer with a bank or financial institutions, you would have earned some goodwill and this will be a value added point to bag a loan for yourself at a competitive rate.

Read Also: Second-Hand Car Loan - Interest Rates, Eligibility, and Documents

The Impact of Your Credit Score on Car Loan Interest Rates

A check on your credit score is one of the primary base that a lender adopts while sanctioning loans. It could be either your car loan or your home loan. A credit score not only impacts the loan approval but also the rate of interest.

In order to get the car loan at the nest interest rate, it is advised you have an excellent credit score, minimal debt, and a huge down payment. These factors indicate the lender that you fall into the group of non-risky borrowers and there are high chances of you bagging loans at a considerably lower interest rate.

Types of Car Loan Interest Rates

Lenders generally offer two kinds of interest rate structures – fixed and floating. Each comes with its own benefits and drawbacks, and the right choice depends on your financial goals and risk appetite.

1. Fixed Interest Rate Car Loans

• Under this option, the interest rate remains the same throughout the loan tenure.
• Your EMIs stay constant, making it easier to plan monthly budgets.
• Fixed rates are ideal for borrowers who prefer predictability and stability, especially those with tight financial schedules.
• Example: If you borrow ₹8 lakh for 5 years at a fixed rate of 9%, your EMI will not change for the entire tenure.

2. Floating Interest Rate Car Loans

• The interest rate here is linked to market benchmarks (like repo rate or MCLR).
• Your EMI may increase or decrease depending on market conditions.
• Floating rates often start slightly lower than fixed rates but can fluctuate over time.
• Best suited for borrowers who are comfortable with some level of risk and expect rates to fall in the future.

The Pros and Cons of Car Loan Rates

Pros of Car Loans

Affordable Access to Cars: A car loan gives you the flexibility to get your own car without having to pay the entire price at one go. Even if the consumers do not have potential savings with them, they can purchase a car based on their requirements and needs.

Customized Payment Solutions: The payment solutions that is offered by most of the lenders are flexible. Lenders provide various repayment options offering the flexibility that will suit their requirements. This flexibility helps individuals to manage finances efficiently at the same time own a vehicle.

Complete Ownership & Customization: The complete ownership lies on the hands of the borrower from the date of purchase giving him the flexibility to redesign or customize it according to his requirements.

Access to Better Cars: Getting a car loan will give you the flexibility to go in for high-end cars as the upfront amount you are paying for the car is low. And the cost of the car gets divided across EMIs.

Better Credit Scores: Paying consistent EMI payment helps you to build a positive credit history. This adds as a huge advantage when you want to take another loan at a later stage. This will help you to build your credit score.

Cons of Car Loans

Rising Interest Over Time: One of the primary disadvantages of a car loan is that you end up paying a lot more than the actual cost of the car. Since the loan includes the interest and other charges it might have a detrimental financial impact on your savings in the long run.

Facing Depreciation Effects: Car always comes with depreciating effect over time. Sometimes the depreciation value of the car is lower than the outstanding loan amount. This makes it difficult to sell the car without incurring additional costs.

Monthly Financial Strain: The effect of the EMIs that you need to endure over a long period of time might put a huge hole in your pockets over a period of time. And moreover, failure to make timely payments will have a negative effect on your credit scores.

Risk of Losing Ownership: If you do miss your payments consistently, the lender has the right to take over your vehicle. In this case, you will lose all the EMIs you paid so far along with a vehicle. So please be careful as aquisition of the vehicle by the lender might lower your credit scores and you might find it difficult to get new credit.

Bank Car Loan Vs NBFC Car Loan

When you have decided to go in for a car loan you have the flexibility to go in for a loan through a bank or NBFCs. They are:

How to Negotiating for the Best Car Loan Rate?

Lenders these days have flexible rules when it comes with granting car loans. And moreover, they are ready to give loans even for used cars. This gives a good purchasing power for many of the customers who cannot afford a new one. The entire process is simple with minimal documentation required. With flexible repayment options and with the loan amount is been repaid in Equated Monthly Instalments, borrowers do not have any hassles in taking a loan.

The entire procedure of acquiring the loan is done within a few days right from loan application to approval. However, following these basic tips will help you to acquire a car loan with better terms.

• Bargaining a Lower Price: One of the best methods to reduce the Car Loan EMI is to bargain for a lower price of the car. Most of the car dealers keep a huge profit margin while selling the car. One car also make use of the special offer and festive season discounts to have a reduced car price.
• Aim for a Favorable Interest Rate: Not only banks but several NBFCs offer car loans these day at a lower interest rate. Rather than going in for the financial institution specified by the dealer, you can make your own enquiries in the market on the car loan interest rates. This is due to the fact that the dealers might have tie-ups with financial institution and chances are there that they might be taking commissions for their referrals.
• Opt for a Faster Payoff Period: Always go in for a shorter loan tenure. Though you might end up paying a higher EMI, you will end up saving a huge amount on the interest.
• Clarify All Terms Before Signing: Most customers end up taking loans without reading the offer documents carefully. Reading the offer document, understanding the loan interest rates, EMIs, prepayment penalties are crucial, missing EMI penalties are crucial before signing the loan document.

Eligibility Criteria for Car Loans

The following are the list of eligibility criterion that needs to be followed while applying for car loans. They are:

• Age: Should be between 18 years to 80 years of age.
• CIBIL Score: 700 or higher
• Employment:
• For Salaried Employees: Should have a minimum salary of Rs.25,000
• For Self Employed: Submission of ITR return for the past 2 years.

Documents Required for Car Loan Applications

The following are the list of documents required for car loan applications. They are:

• KYC Documents: Aadhar/Passport/Driving License/ Voters ID Card
• PAN Card
• Employee ID Card
• Salary Slips for the previous 3 months
• Bank account statements for the past 3 months

Any additional documents that are required will be delivered to you during the loan application process.

Car Loan Foreclosure

Car loan foreclosure is the process of repaying the car loan in full before the scheduled loan tenure ends. Borrowers choose to foreclose to save on the interest cost and become debt-free. However, most of the lenders charge foreclosure fees. This fee is a percentage of the outstanding loan amount.

The following are some of the key aspects of car loan foreclosure. They are:

Prepayment Charges: Some lenders impose prepayment charges. This varies between banks and financial institutions.

Process: Customers need to inform the lenders, pay the outstanding principal along with other interest and other charges applicable.

Impact on Credit Score: Though foreclosing your account might save you a lot of interest, it will temporarily affect your credit score.

Eligibility: Some lenders have a lock-in period before allowing foreclosure. Checking the loan terms is essential.

What is a Good Interest Rate on a Car Loan?

A good interest rate on a car loan is one that is lower than the average market rate and matches your financial profile. In India, most new car loans come with interest rates ranging from 7.70% to 10% per annum. If you qualify for a rate closer to the lower end of this range (around 7.70%–9%), it is generally considered a good deal.

What makes a rate “good” depends on factors such as your credit score, income stability, relationship with the bank, and loan tenure. Borrowers with a strong credit history (CIBIL score of 750 and above) often secure the most competitive rates.

In short, if your car loan interest rate is below 9% p.a., it can be considered a good deal in the current market.

Frequently Asked Auestions