Buying a car is a major milestone for many individuals and families in India. Whether it’s your first car or an upgrade, taking a loan is one of the most common ways to finance this purchase. But before you apply for one, it’s important to understand car loan interest rates. These rates determine how much you will pay beyond the vehicle’s price over the repayment period.
In this detailed guide, we’ll explain what car loan interest rates are, how they work, what factors affect them, and how to compare them easily.
What Are Car Loan Interest Rates?
Car loan interest rates are the cost charged by banks or lenders for borrowing money to buy a car. The rate is applied to the total loan amount and is usually calculated annually. It can either be fixed or floating, and it influences the Equated Monthly Installments (EMIs) you’ll need to pay.
If the interest rates are high, your monthly payments increase. If the rate is lower, you save money on interest and reduce your overall cost.
Average Car Loan Interest Rates – 2025
To help you better understand what’s available in the market, here is a comparison of car loan interest rates offered by popular banks and lenders in India, 2025:
| Bank / Lender | Interest Rate (per annum) | Loan Tenure | Processing Fee |
|---|---|---|---|
| State Bank of India | 8.70% – 9.80% | Up to 7 years | ₹500 to ₹5,000 |
| HDFC Bank | 8.25% – 10.00% | Up to 7 years | Up to ₹5,000 |
| ICICI Bank | 8.40% – 10.25% | Up to 7 years | Up to 2% of loan amount |
| Axis Bank | 8.60% – 9.50% | Up to 7 years | ₹3,500 or more |
| Kotak Mahindra Bank | 8.75% – 10.75% | Up to 5 years | Up to 1.75% of loan amount |
| Bank of Baroda | 8.85% – 9.35% | Up to 7 years | ₹1,500 to ₹10,000 |
| Punjab National Bank | 9.00% – 9.90% | Up to 7 years | ₹1,000 to ₹5,000 |
| Bajaj Finserv | 9.25% – 13.00% | Up to 7 years | Up to 4% of loan amount |
| Bank | Floating Rate | Fixed Rate | CIBIL-Based Rates | Women / EV Discounts | Main Loan Products & Highlights |
|---|---|---|---|---|---|
| State Bank of India | 9.20% – 10.15% (1‑yr MCLR + spread) | 9.20% – 10.15% | • 800+: 9.20% (≤3 yrs); 9.30% (>5 yrs) • 775‑799: 9.35%, 9.45% • 757‑774: 9.45%, 9.55% – increments by 0.1% per tier | EV (Green Car): 7.55% – 8.25% | • New Car Loan • NRI Car Loan • Green EV Loan • Certified Used Car Loan: 11.75% – 15.25% |
| ICICI Bank | 9.10% – 10.20% (CIBIL & segment) | 10.20% – 9.10% (varying by segment & tenure) | • Higher CIBIL → lower rate (as low as 9.10%) • Used car ≥ 11.25% | No explicit women/EV offer noted | • New & Used Car Loan • 100% funding • Tenure 1–7 years • Minimal docs, quick approval |
| Axis Bank | 9.30% – 11.55% (MCLR + up to 2.65%) | Same as floating | Rates depend on MCLR spreads, tenure, credit score (exact tiers not disclosed) | No specific women/EV discount mentioned | • New Car Loan • Up to 100% on-road price • Processing fee ₹3.5k–12k • Stamp duty ₹700 |
| HDFC Bank | 8.40% – 14.00% (New Car Loan IRR avg 9.24%) | 8.90% (used car) | • Rack rate starts at 9.40% onwards • Auto loan IRR: 8.40–14%, avg 9.24% – rates vary by credit & tenure | None explicitly stated | • New Car Loan • EV car loan • Pre-owned Car Loan • SmartEMI, top-up options • Prepayment penalties: 5–6% within 2 years |
| Canara Bank | 8.05% onwards | – | Not specified, but base rate is 8.05% | No mention | • New Car Loan • EMI ~₹1,561/₹1L for 7 yrs • Both fixed/floating? |
| Union Bank | 7.70% onwards | – | Base starts at 7.70% | 50% concession on processing fee for EVs | • New Car Loan • EMI ~₹1,544/₹1L for 7 yrs |
| Punjab National Bank | 7.85% onwards (floating) | 8.85% onwards (fixed) | – | Not explicitly stated | • New Car Loan • EMI ~₹1,551/₹1L for 7 yrs |
| Bank of Baroda | 8.40% (float) – 8.75% (fixed) | Same as float | – | Not specified | • New Car Loan • EMI ~₹1,579/₹1L for 7 yrs |
🧭 Highlights at a Glance
- Lowest Floating Rates: Union Bank leads at 7.70%, followed by PNB at 7.85%.
- EV Car Loan Leader: SBI’s Green Car Loan offers 7.55%–8.25%, with waived processing fee.
- CIBIL-Based Precision: SBI offers high-grade tiered rates starting at 9.20% for 800+ credit scores SBI.
- Fixed vs Floating Choice: Axis and SBI provide both options. HDFC only offers floating, while ICICI varies by product.
- Processing & Penalties: Axis and HDFC charge processing fees (₹3.5k–₹12k) and part/full prepayment charges (3–6%) .
✅ Best Picks by Category
- Lowest overall rate: Union Bank (7.70%) for standard cars; SBI for EVs.
- High credit score? Go with SBI for best CIBIL-based rates.
- Prefer fixed payments: Axis Bank and SBI offer fixed-rate options.
- Buying an EV? SBI Green Car Loan has clear advantages.
- Need flexible features and fast digital service? HDFC and ICICI are strong picks.
Note: Rates vary based on customer profile, car type, location, and relationship with the bank.
Car Loan EMI Calculator
Types of Car Loan Interest Rates
1. Fixed Interest Rate
This is a rate that remains constant throughout your loan period. It makes it easier to plan your finances because your EMI will not change.
2. Floating Interest Rate
This rate can change during the tenure based on changes in market interest rates or the RBI’s policies. Though initially lower, your EMI may increase over time.
Most banks offer fixed interest rates because it provides customers with more certainty.
Key Factors That Affect Car Loan Interest Rates
1. Credit Score
Your credit score plays a major role. A score above 750 can help you get lower interest rates.
2. Loan Amount and Tenure
Higher loan amounts or longer repayment periods may lead to higher interest rates. Shorter tenures usually mean lower rates.
3. Income and Job Stability
Banks evaluate your repayment ability. A higher and steady income improves your chances of getting lower interest rates.
4. Car Type
New cars often come with better loan terms than used cars. Lenders may charge more for loans on second-hand vehicles due to higher risk.
5. Relationship with the Bank
Existing customers, especially those with salary accounts, might get lower interest rates or reduced processing fees.
How to Choose the Best Car Loan Interest Rates
Follow these tips to find the right deal:
✅ Compare Offers
Do not rely on just one bank. Use comparison tools or visit websites to check different offers.
✅ Know Your EMI
Use a car loan EMI calculator to understand how the car loan interest rates impact your monthly budget.
✅ Avoid Hidden Costs
Low interest rates may come with high processing fees or other charges. Always check the complete cost structure.
✅ Negotiate If You Can
If you have a strong credit profile or an existing relationship with the bank, try to negotiate for better terms.
Example: EMI Comparison at Different Interest Rates
Let’s say you borrow ₹6,00,000 for a car loan for a term of 5 years. Here’s how car loan interest rates affect your monthly EMI:
| Interest Rate | Monthly EMI | Total Interest Paid | Total Payment |
|---|---|---|---|
| 8.50% | ₹12,308 | ₹1,38,496 | ₹7,38,496 |
| 9.50% | ₹12,628 | ₹1,57,680 | ₹7,57,680 |
| 10.50% | ₹12,957 | ₹1,77,407 | ₹7,77,407 |
You can see how even a 1% difference in car loan interest rates can save you nearly ₹40,000 over five years.
Car Loan for New vs. Used Cars
Interest rates for new cars are typically lower than used ones. Here’s a brief comparison:
| Loan Type | Interest Rate Range | Loan Tenure | LTV Ratio |
|---|---|---|---|
| New Car Loan | 8.25% – 10.75% | Up to 7 years | Up to 100% of on-road price |
| Used Car Loan | 11.00% – 15.00% | Up to 5 years | 70–90% of vehicle value |
If you’re planning to buy a used car, be ready for slightly higher car loan interest rates.
Things to Watch Before Signing the Loan Agreement
- Read the Fine Print: Understand terms like foreclosure charges, EMI bounce fees, and penalties.
- Know the Prepayment Terms: Some lenders may charge a fee if you repay early.
- Check for Discounts: Look out for seasonal offers, festival schemes, and special discounts for women or professionals.
FAQs About Car Loan Interest Rates
A. A rate between 8.25% and 9.25% is considered good for salaried individuals with a decent credit score.
A. Yes, many banks offer up to 100% of the car’s on-road price for new vehicles.
A. Shorter tenure means less interest but higher EMIs. Choose based on your repayment capacity.
A. Yes, applying with too many lenders in a short period may impact your credit score due to hard inquiries.
A. As of May 2025, interest rates start from 8.15% p.a. for electric vehicles (EVs) and about 8.30% p.a. for non-EVs. Standard rates vary by bank and borrower profile.
A. Both options are available. Fixed rates stay the same throughout the loan. Floating rates change with benchmark rates like MCLR or repo-linked rates.
A. A score above 750 typically secures the lowest rates. Lower scores can increase rates by several percentage points.
A. Yes, some public sector banks (e.g., SBI) offer small concessions for women borrowers. A few lenders also have women-focused auto loan schemes.
A. Fixed rates offer payment predictability. Floating can be beneficial if you expect rate cuts. Market trend is currently downward, so some borrowers choose floating to benefit.
A. Several factors, including:
Credit score
Loan term (shorter = lower rate)
Down payment (higher = lower rate)
Vehicle type (new vs used, EV vs ICE)
A. No, car loans do not offer a moratorium. EMIs begin soon after disbursement.
A. Yes. Borrowers with good credit, salary account relationships, or competing offers can often negotiate rates or terms .
A. Yes—though private banks may charge a penalty if you pre-pay early. Public sector banks (like SBI, PNB) often allow pre-payment with minimal fees.
A. A car loan (secured) generally offers lower interest (around 8–10%) than a personal loan (typically 12–15%).
Final Thoughts
Choosing the right car loan interest rates is just as important as selecting the car itself. A well-informed choice can save you thousands over the loan period. Always check your credit score, compare options, calculate your EMI, and read all the terms before applying.
A small amount of research can lead to big savings. Whether you’re buying a sedan, hatchback, or SUV, take the time to find the best deal. After all, your car should bring joy—not financial stress.
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