How a Car Loan Really Works
To be fair, it’s simpler than it sounds. If you want to buy a car but don’t have all the money upfront, banks lend you the amount directly to the dealer. You then repay it in monthly installments, popularly known as EMIs. The catch? Banks aren’t doing this out of charity—they take your car as collateral, a process technically called hypothecation.
Check your RC; it probably says “hypothecation.” Simply put, if you default on your EMI, the bank can sell the car to recover its money. Usually, banks don’t go that far, but the option is there.
Car Loan Eligibility – Who Can Apply?
Eligibility varies depending on your job and income:
- Salaried employees: Minimum annual salary of ₹3 lakh.
- Self-employed or business owners: Minimum ITR of ₹3 lakh.
- Agricultural income: ITR should be at least ₹4 lakh.
If your income is lower, you can bring a co-applicant to strengthen the application. Age criteria generally range from 21 to 70 years, though some banks allow 18+ for salaried employees.
Two-wheelers? Different rules. Minimum salary drops to ₹1.8 lakh per year.
Some banks insist you open a savings or salary account with them. My cousins? They managed without opening a new account—negotiation helps, but it’s not always easy.
How Much Loan Can Banks Offer?
Most banks fund up to 90% of the car’s on-road price. SBI usually offers 85%, while some select categories, like loyal customers or FD holders, can get 100%. For electric cars, funding can go up to 90%.
Why not 100% for everyone? Two main reasons:
- Banks want you to show seriousness by arranging 10–15% from your pocket.
- Cars depreciate fast; they lose 10–15% the moment they leave the showroom.
So, your EMI covers the remaining balance, and the bank mitigates risk.
Interest Rates – Floating vs Fixed
Two types exist:
- Floating: Changes with RBI’s repo rate—generally recommended.
- Fixed: Stays constant, not ideal now as rates might drop.
Currently (June 2025), SBI car loans start around 9.20% floating for top-credit-score customers. Those with lower credit scores may get 9.70% or more. Electric cars sometimes enjoy a 0.10–0.25% discount.
Other banks like Central Bank or Canara Bank offer competitive rates in the 8.2–8.3% range.
Tip: Always compare multiple banks before finalizing. Don’t just look at the interest rate—consider processing fees too.
Other Charges to Know
- Processing fees: 0.75–1,500+ depending on the loan amount.
- Hypothecation/documentation: Standard across banks.
- Prepayment: Usually free after 2 years; before that, 2% closure charges apply.
- Late/penalty charges: Applicable for bounced EMI or delayed payment.
Loan Tenure and Disbursement
SBI and most banks offer up to 7 years. My advice? Stick to 4–5 years. Longer tenure increases total interest paid, and unlike home loans, car loans don’t provide tax benefits on EMI.
Disbursement is straightforward. The bank pays the dealer directly, and you start EMIs monthly. SBI offers flexible EMI options for the first 6–12 months, allowing partial payments if needed.
Electric Cars vs Petrol/Diesel Cars
Electric cars have slightly different funding rules. Some banks offer higher funding percentages or lower interest rates to promote EV adoption. For example, my cousin’s Hyundai EV loan received 90% funding, not 100%.
Interestingly, banks see EV buyers as serious customers—they assume if you’re willing to invest in new tech, you’re more likely to repay. Makes sense, right?
FAQ – Car Loan Secrets Revealed
Can I get a car loan without a bank account?
Yes, but most banks prefer you have an account with them. Negotiation might help.
What’s the maximum EMI I can afford?
Banks typically allow EMI up to 48 times your monthly salary, but keep it comfortable for yourself.
Floating vs Fixed interest—which is better?
Floating is usually better now as rates might decrease in the near future.
Any special tips for electric car loans?
Some banks offer lower interest rates (0.10–0.25% discount) and higher funding—worth checking.
How to reduce my interest rate?
Shop around multiple banks, compare offers, and negotiate on processing fees.
Final Thoughts
Honestly, understanding car loan secrets revealed is less about memorizing numbers and more about planning smartly. A little homework, a few bank visits, and negotiating can save you a significant chunk of money.
For anyone buying a car, petrol, diesel, or electric, knowing the eligibility, charges, interest, and tenure options makes the process far less intimidating. And if you want to estimate your monthly payments easily, check out this handy EV Loan EMI Calculator.
Buying a car is exciting—but doing it smartly? That’s the real win.