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Types of Car Loans in India

Types of Car Loans in India

Summary: Car loans in India include options for new cars, used cars, existing vehicles, top-ups, balance transfers and electric vehicles. The loan you choose will also involve decisions around fixed or floating rates and whether to borrow from a bank or an NBFC. This guide explains where each option fits and what to compare before you choose one.


The types of car loans in India are easier to understand when you first decide what the money is for. You may be buying a new car or a second-hand one. You may already own the car and want to borrow against it. If a car loan is running, you could be looking for extra funds or a better rate. Electric-vehicle buyers may also find loans meant specifically for EVs.

That gives you six main options; namely, new car loans, used car loans, loans against cars, top-up loans, balance transfers and green car loans. One of these should match the purpose of your borrowing.

However, there is another choice to make after that. The loan may carry a fixed or floating rate, and the lender may be a bank or an NBFC. These choices affect the rate, fees, paperwork and repayment terms rather than the purpose of the loan. The guide below explains each option, links to more detailed information where useful and shows what to compare before deciding.

Car Loan Types at a Glance

The types of car loans below meet different borrowing needs, so start with what you need to finance.

Car Loan TypeWhat It Is ForTypical Financing/Rate Position
New car loanA new showroom carAbout 85%–100% funding; rates may start near 8.75%–10%
Used car loanA second-hand carAbout 80%–85% of assessed value; generally higher rates
Loan against carFunds against a car you ownAmount linked mainly to the car’s value
Car loan top-upExtra funds over a running loanBased on repayments, balance and car value
Balance transferMoving a running loanDepends on rate savings, costs and tenure left
Green/EV car loanAn eligible electric vehicleEV-specific terms may be available

Rates, LTVs, tenures and eligibility rules vary by lender, vehicle and borrower. They can also change over time.

1. New Car Loan

When the car is coming straight from a showroom, a new car loan is the usual option. Before borrowing, compare the cost of taking a loan with paying for the car upfront. Depending on the lender and applicant, the loan may cover around 85%–100% of the eligible on-road price. Rates advertised for stronger profiles can fall around 8.75%–10%, and tenure can extend to about seven years.

A lower EMI can make a seven-year tenure attractive, but you will continue paying interest for longer while the car’s value keeps falling. The outstanding loan may eventually be higher than the car’s resale value. Try different tenures in the car loan EMI calculator and compare the total interest along with the EMI.

2. Used/Pre-Owned Car Loan

For a second-hand car, the lender first works out what the vehicle is worth. The seller’s price may differ, as the loan is usually based on the lender’s valuation. Funding of around 80%–85% is a common benchmark.

Rates are generally higher than on new-car loans and may run from about 11% to the mid-teens. Tenure is often around five years, though lenders may go longer or limit the car’s age at maturity.

The checks should not stop at the EMI. CRISIL places India’s used-to-new car sales ratio at around 1.4, but a growing market does not remove the need to check the vehicle. Match the RC with the ownership details and see whether a car loan hypothecation is still recorded. If an earlier loan has been repaid, ask the seller for the car loan NOC before paying.

3. Loan Against Car

A loan against car is meant for someone who already owns a vehicle and needs money for another purpose. The car is offered as security, while you continue using it during the loan period.

Its age, model, condition and present market value help decide how much you can borrow. The lender will check your income and repayment record as well. Since the loan is secured, its rate may be lower than the rate on an unsecured personal loan, but you still need to compare the APR and fees.

This loan does not require an existing car loan. A top-up does, which is the main difference between the two.

4. Top-Up Loan on an Existing Car Loan

If you are already repaying a car loan and need extra funds, your lender may offer a top-up loan. Since it already has your repayment record, it will check whether the earlier EMIs were paid regularly. The unpaid loan balance and the car’s present value are considered as well.

There is no common waiting period. Some lenders consider a top-up after about 12 months of timely EMIs, while others follow a different rule. The additional amount is generally available for needs other than another vehicle purchase.

Before accepting the offer, compare its rate and charges with those of a personal loan. A top-up may cost less because it is secured, but the actual quote will show whether it is the better option.

5. Car Loan Balance Transfer

A car loan balance transfer shifts the unpaid part of your car loan to another lender. Borrowers usually consider it when a new lender offers a lower rate or more suitable terms. Some transfer offers may include a top-up loan as well.

The rate difference tells only part of the story. Add the foreclosure or prepayment charge on the old loan, the new processing fee and any documentation or vehicle-valuation cost. A small reduction in the rate may not recover these expenses.

The timing matters too, as more months left on the loan gives you more time to benefit from the lower rate. Enter the new rate and remaining tenure in the car loan EMI calculator to see whether switching would actually reduce the repayment cost.

6. Green/Electric Vehicle Car Loan

Electric car buyers can consider green or EV-specific vehicle loans. Depending on the lender, these can have a different rate, tenure or set of eligibility conditions. Some lenders also cover selected hybrid vehicles, so confirm which models qualify.

There is an older tax benefit that can cause confusion here. Section 80EEB allows eligible individuals to claim up to ₹1.5 lakh for interest paid on an EV loan, subject to its conditions. The loan must have been sanctioned from 1 April 2019 to 31 March 2023. A new loan sanctioned in 2026 is outside that period.

Check the loan’s present terms and model eligibility. Do not include an 80EEB deduction while budgeting for a fresh purchase.

Fixed vs Floating Rate: A Choice Across All Types

The types of car loans explain what you can borrow for. After choosing one, find out how its interest rate will behave. A fixed rate stays unchanged for the period stated in the agreement. This keeps the repayment predictable, which can make monthly budgeting easier.

A floating rate moves with the benchmark named in the loan terms. If that benchmark changes, the EMI, tenure or total interest may change too. The RBI policy repo rate is 5.25% at the time of writing, but this does not mean every car loan moves directly with the repo rate.

Prepayment rules are another point to check. For floating-rate loans sanctioned or renewed from 1 January 2026, RBI directions prohibit prepayment charges on loans given to individuals for non-business purposes. Other cases may follow different rules. Your KFS and agreement should state what applies to your loan. For more detail, make sure you understand the difference between fixed and floating interest rates.

Bank vs NBFC: Where to Borrow

A bank and an NBFC may give very different offers for the same car. Public-sector banks often quote competitive rates, but their eligibility checks may be tighter and the paperwork can take longer. Look at the offer you receive instead of expecting the process or terms to be the same everywhere.

NBFCs often focus on quicker processing, wider dealer access and borrowers whose profiles do not fit a bank’s standard rules. That flexibility may come with a higher rate, though this is not true in every case. A bank may process one application faster, while an NBFC may give another borrower the better quote.

Compare the offers rather than deciding only by the lender category. The KFS will show the APR, processing fee and other important charges. Also check your credit score and the car loan eligibility criteria before sending applications to several lenders.

How to Choose the Right Car Loan

Begin with the reason you need the loan:

  • Choose a new car loan for a showroom purchase.
  • For a second-hand car, consider a used car loan after checking its RC and hypothecation.
  • A loan against car can provide funds against a vehicle you already own.
  • If you are repaying a car loan and need more money, ask whether a top-up is available.
  • Consider a balance transfer when another lender’s savings remain worthwhile after all charges.
  • For an electric car, check both regular car finance and any EV-specific loan on offer.

Once the type of car loan is clear, collect three or four quotes. Compare the APR in each KFS with the down payment, tenure, processing fee and prepayment terms. The Car Loan EMI Calculator shows what happens when you change the amount or tenure. You can then review the available car loan options alongside the other quotes.

Conclusion

The purpose of the loan decides where you should start. A showroom purchase needs a new car loan, while a used car loan covers a second-hand vehicle. Loans against cars, top-ups and balance transfers are meant for people who already own a car or have a running loan. EV buyers can also check whether a green car loan is available.

Once you have the right category, compare fixed and floating rates as well as offers from banks and NBFCs. The KFS will show the APR, fees, amount financed and total repayment. Before applying, review the available car loan options, check the car loan eligibility criteria and enter the proposed amount in the Car Loan EMI Calculator.

Disclaimer: This article is for general information only. Interest rates, LTV ratios, tax provisions, fees, eligibility criteria and loan terms vary by lender and may change. Check the lender’s current terms and applicable regulations before making a borrowing decision.

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FAQs

What are the Different Types of Car Loans?

The six main types of car loans are new car loans, used car loans, loans against cars, top-ups, balance transfers and green or EV loans. Each one covers a different need. Fixed and floating rates are ways of charging interest, while banks and NBFCs are the two broad lender choices.

What is the Difference Between a New and Used Car Loan?

A new car loan pays for a vehicle bought from a showroom. A used car loan is meant for a second-hand vehicle and is usually based on its assessed value. Used-car loans often have a lower LTV, a higher rate and a shorter tenure because the car is older.

What Is a Loan Against a Car?

A loan against a car lets you borrow money using a car you already own. The lender usually checks the car’s age, condition and current value before deciding how much you can borrow. You can continue using the car while repaying the loan, provided you follow the repayment terms.

Should I Choose a Fixed or Floating Rate Car Loan?

Choose based on how you want to manage your repayments. With a fixed rate, the interest rate stays the same, so you know what to expect. A floating rate can change during the loan period. Before deciding, check whether any rate change will affect your EMI, loan tenure or both. Also check the prepayment conditions.

Is It Better to Take a Car Loan From a Bank or an NBFC?

The answer depends on the offers you qualify for. A bank may give you a lower rate, while an NBFC may have a quicker process or accept a wider range of profiles. Ask both for the KFS and compare the APR, fees, tenure, loan amount and foreclosure terms.

Are There Special Loans for Electric Cars?

Yes. Some lenders have separate loans for eligible electric cars, with their own rates, tenures or conditions. Ask which models are covered. For a fresh loan, do not count on the Section 80EEB deduction because its sanction window ended on 31 March 2023.
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