Car Loan Guide: Interest Rates, Down Payment & Smart Buying Tips

A car loan lets you drive home your dream car today and pay for it in easy monthly instalments. But a few smart choices — down payment, tenure and lender — can save you a lot of money. Here's a complete car loan guide for Indian buyers.

New vs used car loan

Feature	New Car Loan	Used Car Loan
Interest rate	Lower	Higher
Funding	Up to 90 – 100% of on-road price	Up to 70 – 80% of car value
Tenure	Up to 7 – 8 years	Up to 5 years
Car age limit	—	Usually under 8 – 10 years at loan end

How much down payment should you make?

Although some lenders offer 100% funding, a down payment of 20% is a smart rule. It:

• Lowers your EMI and total interest
• Improves approval chances
• Protects you if the car's value falls faster than the loan reduces

The 20/4/10 rule

A simple guideline used by many financial planners:

• 20% down payment
• 4 years or less tenure
• 10% of monthly income as the maximum for EMI and fuel

You may not always follow it exactly, but it keeps your car from straining your budget.

Documents required

• PAN, Aadhaar and address proof
• Salary slips (3 months) or ITR (2 years)
• Bank statement for 6 months
• Car quotation / proforma invoice from the dealer

Tips to get the cheapest car loan

1. Compare banks and NBFCs — don't just accept the dealer's financing.
2. Check the processing fee and foreclosure charges, not only the interest rate.
3. Negotiate — festive season offers often include lower rates or zero processing fee.
4. Keep your CIBIL score above 750 for the best deals.
5. Avoid very long tenures — you'll pay much more interest on a depreciating asset.

Frequently Asked Questions

Can I prepay my car loan? Yes, though some lenders charge a foreclosure fee of 2 – 5%. Check the terms before signing.

Is car insurance included in the loan? Some lenders finance the first-year insurance as part of the on-road price.

Ready to drive? Compare car loan offers on Best Home Loan and get approved in as little as 24 hours.