Synopsis: This article explains the types of car loans in India, factors that influence these loans, and the latest car loan interest rates across leading lenders in India.
The Indian car loan market, valued at around $38.7 billion in 2024, is now estimated to reach $72.9 million by 2033 with an annual growth rate of 7.3%. This steady growth shows that Indian consumers are increasingly depending on car loans to buy vehicles. Therefore, interest rates, loan structures, and lender options are now more important for borrowers aiming to get the best car loans.
Types of Car Loans in India
Floating Rate Car Loans: These interest rates are linked to external benchmarks such as the Repo Linked Lending Rate (RLLR), where lending rates are linked directly to the repo rate set by the RBI, along with the spread of the bank. As the interest rate is linked to the repo rate, it can change with changes in market conditions and policy rate movements during the tenure of the loan. This instability can also affect the monthly EMIs as well.
Fixed Rate Car Loans: These loans have a fixed interest rate that stays constant throughout the loan tenure. These interest rates are not linked with any external benchmarks and, therefore, they are not affected by repo rate changes or other market changes. EMIs of such loans also stay stable and constant.
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Factors that Influence Car Loan Interest Rates
Credit Score: Like any other loan, a borrower’s credit score is a crucial factor that decides the interest rates of car loans. Applicants with a high credit score are more likely to get lower interest rates as the high credit score shows low-risk for lenders. A lower score can lead to higher rates or even a loan rejection.
Income and Employment: People with salaries from well established companies or government jobs usually receive better rates, as their type of job shows stable income, which increases the borrower’s creditworthiness. Self-employed borrowers of car loans might face slightly higher interest rates as their income is not stable and predictable.
Loan Amount and Tenure: Loans with shorter tenures and lower amounts usually get lower interest rates, and on the other hand, loans with longer tenures and higher amounts get higher interest rates due to the risk attached.
Vehicle Type: Interest rates are low for new car loans, but for used car loans, the interest rates tend to be higher. This is because new vehicles have higher resale value and lower depreciation risk.
Car Loan Interest Rates as of February 2026
(Source: BankBazaar,13/03/26)
Conclusion
Before finalising a car loan, it’s smart to compare interest rates from different banks and understand the type of interest rate being offered. Always consider long-term affordability instead of just the initial rate. This approach can help borrowers reduce costs and select a car loan that fits their financial situation and repayment ability.
Written by Nila Maria Jacob