How to use this calculator
Loan amount = on-road price − down payment. The EMI uses the standard reducing-balance formula. Total cost of the car adds your down payment, every EMI and the processing fee.
- On-road price: take it from the dealer's written quote. It should list the ex-showroom price, road tax, registration, insurance and any extended warranty or accessories separately. Strike out the extras you did not ask for before you enter the total.
- Down payment: the cash you pay the dealer yourself. Include any exchange value for your old car if the dealer adjusts it against the price.
- Interest rate: the reducing-balance rate from the sanction letter or Key Facts Statement (KFS), not a flat rate from a dealer brochure.
- Tenure and processing fee: both are on the sanction letter. The fee attracts 18% GST.
What a bigger down payment saves
A ₹10 lakh car, 9% for 5 years:
| ₹1 lakh down: EMI | ₹18,683 |
| ₹1 lakh down: total interest | ₹2,20,944 |
| ₹3 lakh down: EMI | ₹14,531 |
| ₹3 lakh down: total interest | ₹1,71,849 |
The extra ₹2 lakh down cuts the EMI by ₹4,152 a month and saves ₹49,095 in interest. If that ₹2 lakh is sitting in a savings account earning far less than 9%, putting it into the car is usually the better use.
Tenure and depreciation: why 7 years is risky
A ₹8 lakh car loan at 9%:
| 3 years: EMI | ₹25,440 |
| 3 years: total interest | ₹1,15,831 |
| 5 years: EMI | ₹16,607 |
| 5 years: total interest | ₹1,96,396 |
| 7 years: EMI | ₹12,871 |
| 7 years: total interest | ₹2,81,195 |
Stretching from 5 to 7 years lowers the EMI by ₹3,736 but adds ₹84,798 of interest. The bigger problem is what you still owe. After 3 years you would owe ₹3,63,493 on the 5-year loan but ₹5,17,240 on the 7-year one.
A new car loses a large part of its value in the first few years. On a long loan with a small down payment, the amount you owe can be more than the car would sell for. That matters if you want to upgrade, if the car is written off in an accident (insurance pays the insured value, not your loan balance), or if your income drops. If the 5-year EMI feels too high, the honest answer is often a cheaper car rather than a longer loan.
Fixed rate means a foreclosure fee
RBI rules bar foreclosure charges on floating-rate loans to individuals for non-business use, but most car loans are fixed-rate, so that protection does not apply. Lenders commonly charge a percentage of the amount outstanding, plus 18% GST, and some also limit part-payments in the first year.
Say you take ₹8 lakh at 9% for 5 years and close it after 24 EMIs, with a 5% charge:
| Outstanding after 24 EMIs | ₹5,22,219 |
| Foreclosure charge + GST | ₹30,811 |
| Interest you avoid | ₹75,609 |
| Net saving from closing | ₹44,798 |
Closing early still saves money here, but the fee eats a large share of the gain. If you expect a bonus or plan to sell the car within 2 to 3 years, ask for a lower foreclosure charge before you sign, or pick a lender with none. Run your own numbers in the foreclosure calculator.
New vs used car loans
Used car loans work the same way but are priced higher, run for shorter tenures and are based on the lender's valuation of the car, which may be well below the seller's asking price. A ₹5 lakh used car loan at 13% over 4 years means an EMI of ₹13,414 and ₹1,43,856 of interest.
Before you buy, check the registration certificate, insurance history and whether an old loan is still recorded on the RC. A car with an earlier hypothecation that was never removed can hold up your own loan.
Ways to pay less on a car loan
- Get a bank offer before the showroom. Dealer finance is convenient, but a pre-approved offer from your own bank gives you a rate to bargain with.
- Compare on APR, not on rate. A lower rate with a higher processing fee, documentation charge or bundled insurance can cost more. The KFS shows the APR.
- Buy insurance separately. Ask for the on-road price without the dealer's policy and compare premiums.
- Say no to add-ons financed into the loan. Accessories, extended warranty and coating packages cost interest for years when added to the loan.
- Read the foreclosure clause. On a fixed-rate loan this is the cost of changing your mind.
Assumptions
- Fixed rate, monthly reducing balance, processing fee paid upfront.
- Insurance, registration and accessories are part of the on-road price you enter.
- Depreciation is not modelled. For a deeper look at the trade-off, read choosing car loan tenure and down payment.
Frequently asked questions
How much down payment should I make on a car loan?
Aim for at least 20% of the on-road price. Many lenders will fund 80% to 100% of the ex-showroom or on-road price, but a bigger down payment means a smaller loan, a lower EMI and less interest. It also protects you if you sell the car early, because you are less likely to owe more than the car fetches.
Is a car loan based on the ex-showroom price or the on-road price?
Lenders state their funding limit against one of the two, and it varies. Ex-showroom is the dealer's price before road tax, registration and insurance. On-road adds those, often 10% to 15% more. If the loan is capped at a percentage of ex-showroom, you must pay the registration, road tax and insurance yourself, so ask which base is used before you plan your down payment.
Is a car loan rate fixed or floating?
Most car loans in India are fixed-rate, so your EMI stays the same for the whole tenure. Some banks offer floating-rate car loans linked to an external benchmark. On a fixed-rate loan the lender can charge a foreclosure or part-payment fee, so look for it in the Key Facts Statement and the sanction letter before you sign.
Why is a used car loan more expensive than a new car loan?
The car is older, its value is harder to judge and it loses value faster, so the lender's risk is higher. Used car loans typically carry a higher rate, a shorter maximum tenure and fund a smaller share of the car's valuation, not the price you agreed with the seller. Get the lender's valuation before you pay a token amount to the seller.
Do I have to buy car insurance from the dealer or the lender?
No. Comprehensive insurance is required while the car is hypothecated, with the lender named on the policy, but you can usually buy it from any insurer. Dealers often bundle their own policy into the on-road quote. Compare that premium with a quote you get yourself, and make sure the cover and add-ons match.
What happens to my car loan if I sell the car before the loan ends?
The lender's hypothecation is recorded on the registration certificate, so the car cannot be transferred cleanly until the loan is closed. You pay off the outstanding amount, plus any foreclosure fee on a fixed-rate loan, collect the NOC and get the hypothecation removed at the RTO. Many buyers and dealers handle this as part of the sale.