Car Loan
Car Loan in India
On-road pricing, depreciation, loan tenure, and foreclosure — all in plain English. No jargon. No fine print.
On-Road Price: What Your Loan Actually Finances
The ex-showroom price is what the dealer quotes — but it is not the full cost of the car. When you finance a car, the loan typically covers the on-road price, which includes several additional costs that many buyers underestimate.
On-road price breakdown for a ₹10 lakh ex-showroom car
- Ex-showroom price: ₹10,00,000
- Registration and RTO charges: ₹10,000–₹15,000
- Road tax (varies by state): ₹50,000–₹1,50,000
- Insurance (comprehensive, first year): ₹25,000–₹40,000
- Accessories (floor mats, etc.): ₹5,000–₹15,000
- Approximate on-road total: ₹11,00,000–₹12,20,000
Road tax varies significantly by state — Karnataka charges around 13% of ex-showroom for new cars, while Delhi charges less. Check your state's RTO for the exact amount.
Car Depreciation and Why It Matters
A new car loses 20–30% of its value the moment it is driven out of the showroom — this is called depreciation. Over the first five years, a car typically depreciates to 40–50% of its original ex-showroom price.
Depreciation matters for car loans because: if you take a 5-year loan on a new car, you may owe more than the car is worth (negative equity) for the first 2–3 years. This matters if you want to sell or trade in early.
Typical depreciation schedule (₹10 lakh ex-showroom car)
- Day 1 (drive-out): ~₹7,00,000–₹8,00,000 (−20 to −30%)
- Year 1 end: ~₹6,50,000–₹7,50,000
- Year 2 end: ~₹5,50,000–₹6,50,000
- Year 3 end: ~₹4,75,000–₹5,75,000
- Year 5 end: ~₹3,50,000–₹4,50,000
Figures are approximate ranges for a standard petrol sedan/SUV. Actual depreciation depends on make, model, condition, and kilometres driven.
Loan Tenure and EMI
Most lenders offer car loan tenures from 1 to 7 years for new cars and up to 5 years for used cars. Longer tenure means lower EMI but higher total interest paid. Here is how the numbers compare:
| Tenure | Monthly EMI (₹10L at 9%) | Total interest paid |
|---|---|---|
| 3 years | ₹31,800 | ₹1,44,800 |
| 5 years | ₹20,750 | ₹2,45,000 |
| 7 years | ₹16,100 | ₹3,52,400 |
EMI calculated on ₹10,00,000 at 9% p.a. reducing balance. Total interest is rounded to the nearest hundred.
Foreclosure
Foreclosure means paying off your car loan before the end of the tenure. Most Indian lenders impose a lock-in period of 12 months during which foreclosure carries a penalty of 3–6% of the outstanding principal.
After the lock-in period, floating-rate car loans cannot legally carry a foreclosure penalty per RBI guidelines — but you should confirm this with your specific lender, as some fixed-rate loans or certain NBFCs may still charge a small fee.
Example: If you foreclose a ₹8 lakh car loan in month 18 with an outstanding principal of ₹6.5 lakh, and the lender charges 3% foreclosure fee — the fee of ₹19,500 is worth paying if you are saving ₹2 lakh or more in future interest by clearing the loan early.
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Frequently asked questions
What is the typical interest rate for a car loan in India?
What is the maximum car loan tenure?
What are the foreclosure charges on a car loan?
Should I take a new car loan or a personal loan to buy a car?
Sources
Sources: Reserve Bank of India (RBI) car loan guidelines (rbi.org.in) · SIAM (Society of Indian Automobile Manufacturers) on-road price data · HDFC, ICICI, SBI car loan pages · Income Tax Act 2025. Rates verified 2026-10-08. Last reviewed by FinWiz24 Research Desk.