What is the Car Loan?
A car loan is a reducing-balance loan secured against the vehicle. Banks typically fund 80–90% of the on-road price for new cars and 60–75% for used ones, over tenures of 1–7 years at rates from about 8.5% to 15%.
Unlike a home, a car is a depreciating asset — it loses roughly 15–20% of value in year one and about half by year five. That makes the interest you pay pure cost, which is why the total figure above matters more than the monthly EMI a dealer quotes you.
Formula & worked example
Car loans use the same reducing-balance EMI formula as any other loan:
EMI = P × i × (1 + i)N / ((1 + i)N − 1)
Worked example: a ₹12,00,000 car with ₹2,40,000 down means a ₹9,60,000 loan. At 9.5% for 5 years (i = 0.007917, N = 60) the EMI is about ₹20,161. You repay ₹12.10 lakh in total, so ₹2.50 lakh is interest — and the car may be worth only ₹6 lakh by then.
How to use this car loan calculator
- Enter the on-road price, not ex-showroom — it includes registration, insurance and accessories.
- Set your down payment. A larger one cuts both EMI and total interest.
- Enter the rate the bank quoted, not the dealer's "monthly scheme" figure.
- Compare 3, 5 and 7-year tenures — the EMI drops but the interest climbs sharply.
Smart tips
- Put at least 20% down. It reduces interest and protects you from owing more than the car is worth if you sell early.
- Keep the tenure at or under 5 years. A 7-year car loan usually outlives the car's best years and costs far more interest.
- Dealer finance is convenient but often 1–2% costlier than your own bank — always get one outside quote.
- Watch for processing fees and mandatory bundled insurance; they can add 1–2% to the real cost.
- Budget 8–12% of the car price per year for fuel, insurance, servicing and tyres — the EMI is not the full cost.
Frequently asked questions
What is a good down payment for a car?
At least 20% of the on-road price. This keeps the EMI manageable, reduces total interest, and means you are not "underwater" (owing more than the car is worth) in the first two years.
Is a longer car loan tenure a bad idea?
Usually yes. A 7-year loan lowers the EMI but you pay much more interest and stay in debt long after the car has lost most of its value and warranty.
Should I take dealer finance or bank finance?
Compare both. Dealers are faster but frequently price 1–2% higher, or bundle insurance you did not choose. Getting a pre-approved bank offer gives you negotiating power.
Can I prepay a car loan?
Yes, though unlike floating-rate home loans, banks may charge a foreclosure fee of 3–6% on car loans, particularly in the first year. Check your sanction letter before prepaying.
Does a car loan affect my home loan eligibility?
Significantly. A ₹20,000 car EMI reduces home loan eligibility by roughly ₹23 lakh at 8.6% over 20 years, because it eats directly into your FOIR.
What is the EMI for a ₹10 lakh car loan?
As a guide, a ₹10 lakh car loan at 9.5% p.a. is about ₹20,982 a month over 5 years, or about ₹16,322 over 7 years. A larger down payment lowers the amount financed and the EMI.
How does the down payment affect my car-loan EMI?
The EMI is calculated only on the amount you finance (price minus down payment). A bigger down payment means a smaller loan, a lower EMI and less total interest.
Want the theory behind the numbers? Read our car loan guides on the Money Blog.
Written by Gurjeet Singh, Sharpen Solutions. Last reviewed 4 Oct 2026. How we check these numbers.