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Tata Capital > Blog > Loan for Vehicle > How Car Loans Work in India?

Loan for Vehicle

How Car Loans Work in India?

How Car Loans Work in India?

A car loan is one of the fastest growing financial trends during the last few years. With the arrival of GST in the market, it is considered that it will help recover the momentum that was lost during last year by the luxury cars, in particular, and the auto industry in general. GST undoubtedly is great news both for buyers as well as the manufacturers.

 Almost all public sector and private sector banks, and other financial lenders have come to the forefront with attractive car loan deals to woo the consumers. Not only this, several car manufacturers in association with vehicle loan financiers come up with a customized deal that serves as a combo offer to address all needs of a car buyer under one roof.

In India, you can avail a car loan of up to 85% of the car’s total price. According to Rishi Mehra, Co-founder,, “Car loans are given up to 85 percent of the car value and also based on your repayment capacity, i.e. your Income. So, if you plan to buy a Mercedes then your monthly income should be good enough to be able to service EMIs”. It should be kept in mind that a car is a depreciating asset so taking a big loan is in no way a smart move. Also, the bigger the car. The greater will be its maintenance and fuel charges. It is also suggested that the vehicle loan EMI should not exceed 20 percent of your monthly take-home salary.

Car loan lenders also check the CIBIL score of the applicant before sanctioning the loan. CIBIL is an agency that evaluates the credit score of individuals and provides a report for the same. The greater is the CIBIL score, the better are your chances of getting a loan approval. If the CIBIL score is 750 or more, then are higher chances of loan approval. A good CIBIL score also will give an upper hand in the discussion with the lender and the customer can strongly negotiate on the interest rates.

In India, car loans are normally sanctioned for a maximum period of five years. One should always try to prepay the loan amount as it will save you from paying large chunks of money as interest. A car loan is considered to be a secured loan and lender will mortgage your vehicle until you repay the entire loan amount and close the loan.

The customer should with his/ her lender whether they provide convenient options for customizing EMIs. For example, Tata Capital provides simpler repayment options like step up (EMIs will increase gradually), step down (EMIs will decrease gradually), ballooning (low EMIs initially with bigger payment in last EMI) and bullet (prepayment done in parts with a proper schedule). Thus if you are planning to avail a car loan in near future, it is advised that you do a fair amount of internet research and check the interest rates of various lenders before freezing on one name. Good luck!