How Car Loan EMI is Calculated
Car loan EMI uses the reducing-balance formula: EMI = P × r × (1+r)ⁿ / ((1+r)ⁿ − 1). Unlike flat-rate personal loans, car loans in India are always calculated on a reducing balance — meaning your interest liability decreases with each payment as the outstanding principal reduces. This makes comparing car loan offers straightforward: the key variables are loan amount, interest rate, and tenure.
For example: a ₹8 lakh car loan at 9% p.a. for 5 years gives a monthly EMI of approximately ₹16,604. Total interest paid over 5 years is about ₹1.96 lakh. Extending the tenure to 7 years lowers the EMI to ₹12,826 but increases total interest to ₹2.77 lakh — an extra ₹81,000 for the same loan.
Car Loan Rates in India (2026)
| Bank / NBFC | Rate (p.a.) | EMI on ₹8L / 5yr |
|---|---|---|
| SBI | 8.85% | ₹16,537 |
| HDFC Bank | 9.00% | ₹16,604 |
| ICICI Bank | 9.10% | ₹16,648 |
| Kotak Mahindra | 8.99% | ₹16,600 |
| Axis Bank | 9.25% | ₹16,715 |
New Car vs Used Car Loan — Key Differences
- New car: Banks typically finance 80–90% of the on-road price. Rates start at 8.85%. Maximum tenure: 7 years.
- Used car: Banks finance 70–80% of the vehicle valuation. Rates are 1–3% higher than new car rates. Car should not be more than 10 years old at loan end.
- Zero down payment offers: Some manufacturers tie up with banks for 100% financing — but check the interest rate, often 1–2% higher than standard.
- Foreclosure: After 12 months, most banks allow part-prepayment at 2–5% charge. Budget borrowers should choose lenders with lower foreclosure fees.
Rates sourced from respective bank websites as of 2026. Subject to change per RBI policy and individual credit profile.