Calculate your car loan EMI and total cost
A car loan is a secured loan โ the vehicle you purchase acts as collateral. Banks and NBFCs finance up to 80โ90% of the on-road price of a new car. You pay the remaining 10โ20% as down payment and repay the loan in monthly EMIs over 3โ7 years. Since it is secured, car loan rates are lower than personal loans but higher than home loans.
One important thing to understand: the loan amount is on on-road price (which includes ex-showroom price, RTO registration charges, insurance, and accessories), not just the ex-showroom price. So for a car with โน8 lakh ex-showroom price, the on-road cost in a metro might be โน9.5โ10 lakh, and you can borrow up to 85% of that.
New car loan: Rates around 8.5โ11% p.a. Tenure up to 7 years. LTV up to 90%. Processing is faster as there is no valuation needed.
Used car loan: Rates higher โ typically 12โ18% p.a. Shorter tenure (3โ5 years max). LTV lower โ usually 70โ80% of market value. Banks require vehicle valuation and may not finance very old vehicles (usually car should not be more than 8โ10 years old at end of tenure). Worth it if you know used cars and can find a well maintained one at a good price.
Car dealers are experts at making a car seem affordable by focusing only on EMI. A car at โน1.5 lakh EMI sounds reasonable for a โน12 lakh on-road car. But lets actually do the math:
โน12 lakh loan at 10% for 5 years: EMI = โน25,497. Total repayment = โน25,497 ร 60 = โน15.3 lakh. Total interest paid = โน3.3 lakh on top of the โน12 lakh you borrowed.
Make sure to add: down payment already paid + total EMIs over tenure = true total cost of the car. For the above example, if down payment was โน2 lakh, actual total spend = โน2L + โน15.3L = โน17.3 lakh for a โน14 lakh car. The extra โน3.3 lakh is the cost of financing.
If you have the cash available, paying outright is almost always better financially โ you save all the interest. But there are cases where taking a loan makes sense:
If the cash you would use is invested and earning 12%+ in equity, and the car loan is at 9%, keeping the investment and taking the loan has a mathematical edge. However, cars depreciate 15โ20% in year one and 10% every year after โ so even with this math, most financial advisors suggest minimising car debt. Buy what you need, not what impresses.
Also, some dealers offer 0% interest schemes. These are rarely truly zero โ the cost is baked into a higher on-road price or dealer margin. Always negotiate the car price first, then discuss financing separately.