{"id":55215,"date":"2026-10-13T14:33:34","date_gmt":"2026-10-13T09:03:34","guid":{"rendered":"https:\/\/www.tatacapital.com\/blog\/?p=55215"},"modified":"2026-10-13T14:46:58","modified_gmt":"2026-10-13T09:16:58","slug":"types-of-car-loans","status":"publish","type":"post","link":"https:\/\/www.tatacapital.com\/blog\/loan-for-vehicle\/types-of-car-loans\/","title":{"rendered":"Types of Car Loans in India"},"content":{"rendered":"\n

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Summary: <\/strong>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.<\/p>\n\n\n\n


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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

<\/a>Car Loan Types at a Glance<\/strong><\/h2>\n\n\n\n

The types of car loans below meet different borrowing needs, so start with what you need to finance.<\/p>\n\n\n\n

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Car Loan Type<\/strong><\/td>What It Is For<\/strong><\/td>Typical Financing\/Rate Position<\/strong><\/td><\/tr>
New car loan<\/strong><\/a><\/td>A new showroom car<\/td>About 85%\u2013100% funding; rates may start near 8.75%\u201310%<\/td><\/tr>
Used car loan<\/strong><\/a><\/td>A second-hand car<\/td>About 80%\u201385% of assessed value; generally higher rates<\/td><\/tr>
Loan against car<\/strong><\/a><\/td>Funds against a car you own<\/td>Amount linked mainly to the car\u2019s value<\/td><\/tr>
Car loan top-up<\/strong><\/td>Extra funds over a running loan<\/td>Based on repayments, balance and car value<\/td><\/tr>
Balance transfer<\/strong><\/td>Moving a running loan<\/td>Depends on rate savings, costs and tenure left<\/td><\/tr>
Green\/EV car loan<\/strong><\/td>An eligible electric vehicle<\/td>EV-specific terms may be available<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Rates, LTVs, tenures and eligibility rules vary by lender, vehicle and borrower. They can also change over time.<\/em><\/p>\n\n\n\n

<\/a>1. New Car Loan<\/strong><\/h3>\n\n\n\n

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%\u2013100% of the eligible on-road price. Rates advertised for stronger profiles can fall around 8.75%\u201310%, and tenure can extend to about seven years.<\/p>\n\n\n\n

A lower EMI can make a seven-year tenure attractive, but you will continue paying interest for longer while the car\u2019s value keeps falling. The outstanding loan may eventually be higher than the car\u2019s resale value. Try different tenures in the car loan EMI calculator and compare the total interest along with the EMI.<\/p>\n\n\n\n

<\/a>2. Used\/Pre-Owned Car Loan<\/strong><\/h3>\n\n\n\n

For a second-hand car, the lender first works out what the vehicle is worth. The seller\u2019s price may differ, as the loan is usually based on the lender\u2019s valuation. Funding of around 80%\u201385% is a common benchmark.<\/p>\n\n\n\n

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\u2019s age at maturity.<\/p>\n\n\n\n

The checks should not stop at the EMI. CRISIL places India\u2019s 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.<\/p>\n\n\n\n

<\/a>3. Loan Against Car<\/strong><\/h3>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

This loan does not require an existing car loan. A top-up does, which is the main difference between the two.<\/p>\n\n\n\n

<\/a>4. Top-Up Loan on an Existing Car Loan<\/strong><\/h3>\n\n\n\n

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\u2019s present value are considered as well.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

<\/a>5. Car Loan Balance Transfer<\/strong><\/h3>\n\n\n\n

A car loan balance transfer<\/a> 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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

<\/a>6. Green\/Electric Vehicle Car Loan<\/strong><\/h3>\n\n\n\n

Electric car buyers can consider <\/a>green or EV-specific vehicle loans<\/a>. 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.<\/p>\n\n\n\n

There is an older tax benefit that can cause confusion here. Section 80EEB allows eligible individuals to claim up to \u20b91.5 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.<\/p>\n\n\n\n

Check the loan\u2019s present terms and model eligibility. Do not include an 80EEB deduction while budgeting for a fresh purchase.<\/p>\n\n\n\n

<\/a>Fixed vs Floating Rate: A Choice Across All Types<\/strong><\/h2>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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<\/a>.<\/p>\n\n\n\n

<\/a>Bank vs NBFC: Where to Borrow<\/strong><\/h2>\n\n\n\n

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.<\/p>\n\n\n\n

NBFCs often focus on quicker processing, wider dealer access and borrowers whose profiles do not fit a bank\u2019s 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.<\/p>\n\n\n\n

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<\/a> and the car loan eligibility criteria before sending applications to several lenders.<\/p>\n\n\n\n

<\/a>How to Choose the Right Car Loan<\/strong><\/h2>\n\n\n\n

Begin with the reason you need the loan:<\/p>\n\n\n\n