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The interest rate on a car loan is critical to a bumpy-free ride via your dream 4-wheeler. The setting of interest rates will decide the outflow in terms of equated monthly installments (EMIs), a portion of both interest and principal amount payable towards a car loan till the loan tenure is over. The tenure for a new car loan is upto 7 years, while it is 5 years for used vehicles.

The interest rate is dependent upon your income, repayment capacity, credit history, car model type and other factors. Lower the interest rates, lower will be the EMIs and eventual outgo amount from your pocket. So, shop and find the lenders offering a car loan at lower interest rates.

Types of Car Loan Interest Rates

Car loan is offered on both floating and fixed rates. At floating, the interest rate will keep on changing based upon the changes in lending rate by banks from time to time. The fixed rate means the rate of interest will remain the same throughout the loan tenure, thereby depriving the customers to gain from the positive market cues which is the case with a floating rate car loan. All new floating rate car loans are now governed by MCLR, which you can know in detail below.

Marginal Cost of Funds Based Lending Rates( MCLR)

The Reserve Bank of India (RBI), headed by the former Governor Raghuram Rajan, slashed repo rate by 125 basis points (bps) since Jan, 2015. However, banks have lowered the lending rates in the tune of just 50-60 bps, not even 50 per cent transmission of benefits to the borrowers. Saddened by the lack of adequate response of banks in lieu of its rate cuts, the RBI came up with a methodology of the marginal cost of lending rate (MCLR), in place of the base rate regime, to ensure better transmission of rate cut benefits to the borrowers. The base rate is still applicable for loans disbursed before 1st April, 2016. While new car loans go automatically within the MCLR regime. So, if you have availed a loan before the said period and want to make the most of the favourable market condition, you can switch to MCLR. But after making the switch to MCLR, you can't shift back to base rate.

The calculation of MCLR will be made by banks after taking into consideration their marginal cost of funds, which refer to the interest rate at which they borrow. Along with that return on equity and cash reserve ratio, the cost that banks have to incur while keeping the cash reserves with the RBI, operating costs and tenor premium also play a role in the revision of MCLR from time to time. Banks can provide a car loan at either MCLR or an add up to it after assessing the credit worthiness of an individual.

Banks will keep publishing the MCLR on a monthly basis after reviewing it once a quarter. Additionally, the lenders will have to specify the dates on which the interest rate is reset in the case of floating rate loans. Well, the car loan can be granted with reset dates linked to the sanction or the MCLR review date. The interest rate chargeable to a borrower will remain applicable till the next date of rate reset. However, the resetting dates of interest should not be more than a year.

Components of MCLR at a Glance

  • Operating Expense - It refers to the cost incurred by banks in their day-to-day operation.
  • Cash Reserve Ratio' (CRR) - The CRR is actually the cost that banks have to pay while keeping the reserves with the RBI, which does not pay any interest on the same. The cost of maintaining these idle funds can be passed on by banks to the loans of the end consumers.
  • Tenor Premium- The loan commitments with longer tenures give rise to tenor premium.
  • Marginal Cost of Funds - It includes the marginal cost of borrowing as well as return on networth. The RBI guidelines state that the Marginal Cost must be charged based on certain factors mentioned below.
    1. Interest rate offered by banks on deposits like savings, term deposit, foreign currency deposit, etc.
    2. The cost incurred by banks while borrowing from the RBI is known as 'Repo Rate', often called as a short-term interest rate. In addition, the long-term borrowing rate also adds to the marginal cost of banks.
    3. Return on net worth- in compliance with the capital adequacy norms

The marginal cost of borrowings should constitute 92% of the marginal cost of funds, with return on net worth having the remaining 8% weightage.

Car Loan Interest Rate for All Banks

Lenders New Car Used Car
State Bank of India (SBI) 9.20%-9.25% p.a.(Floating) 12.65% p.a. (Floating)
ICICI Bank 10.75%-12.75% p.a. 15.50% p.a.
HDFC Bank 9.25%-11.25% p.a.(Monthly Reducing Balance) 14.50%-17.50% p.a. (Monthly Reducing Balance)
Axis Bank 9.50%-15% p.a. (Monthly Reducing Balance) 14.50%-16.25% p.a. (Monthly Reducing Balance)
Kotak Mahindra Bank 11.50%-13.50% p.a. (Floating) 15%-21% p.a. (Floating)
Bank of Baroda (BoB) 9.75% p.a. (Floating) N.A.
Bank of India (BOI) 9.40% p.a. (Floating) 9.50% (Floating)
Punjab National Bank (PNB) 9.60%-9.85% p.a. (Floating) 9.90% p.a. (Floating)
Yes Bank 10.25%-12.25% p.a. As Applicable by the Bank
IndusInd Bank 10.90% p.a. (Fixed) 14%-21% p.a. (Fixed)
Indian Overseas Bank (IOB) 10.40% p.a. (Floating) As Applicable by the Bank
Corporation Bank 9.90%-10.65% p.a. (Floating) As Applicable by the Bank
Syndicate Bank 10.10% p.a. (Floating) 10.10% p.a. (Floating)
Punjab & Sind Bank 9.90% p.a. (Floating) 12.65% p.a. (Floating)
IDBI Bank 9.95% p.a. (Floating) As Applicable by the Bank
Union Bank of India 9.80% p.a. (Floating) 12.80% p.a. (Floating)
United Bank of India 9.95% p.a. (Floating) 10.45% p.a. (Floating)
Allahabad Bank 9.85% p.a. (Floating) 10.35% p.a. (Floating)
Andhra Bank 10.00% p.a. (Floating) As Applicable by the Bank
Vijaya Bank 10.05% p.a. (Floating) As Applicable by the Bank
UCO Bank 9.75% p.a. (Floating) 10.85%-11.35% p.a.(Floating)
Canara Bank 9.80%-9.85% p.a. (Fixed) As Applicable by the Bank
Oriental Bank of Commerce (OBC) 9.95% p.a. (Floating) 12.70% p.a. (Floating)
Indian Bank 9.95% p.a. (Floating) As Applicable by the Bank
South Indian Bank 9.90%-10.85% p.a. (Floating) As Applicable by the Bank
Karnataka Bank 10.25% p.a. (Floating) 14.45% p.a. (Floating)
Federal Bank 10.65%-12% p.a.(Floating) 10.65%-12% p.a.(Floating)
Dena Bank 9.80%-9.90% p.a.(Floating) 11.90% p.a. (Floating)

Car Loan Interest Rate Calculator

The moment you get to know the interest rate on your car loan, the next thing you should concentrate on is the amount of EMIs payable from your pocket till the expiry of the loan tenure. The EMIs will be decided by the interest rate calculator or to say EMI calculator, which will make use of loan amount, tenure and the rate of interest. As soon as you feed these details, an indicative EMI will flash before you. Knowing the EMI is the first step to an easy car loan repayment journey as you can then save to pay the required amount each month. Not only the EMI, you can also get an idea of the total interest outgo and the overall payment by using the calculator. Want to calculate your car loan EMI? Check out the formula below.

EMI=[P x R x (1+R)^N]/[(1+R)^N-1]

Where, P= Principal Amount
  R= Rate of Interest
N= Number of Monthly Installments

We can give you a glimpse of the EMI by using the calculator. Suppose you are planning to avail a car loan of ₹ 3 lacs from SBI, and want to know the resulting EMIs all throughout the tenure? If so, check the table below.

Car Loan Interest Rate Calculator SBI

Loan Amount (In Rs.) Tenure (In Years) Interest Rate (In % p.a.) EMI (In Rs.) Total Interest (In Rs.) Total Payment (Principal+Interest) (In Rs.)
3,00,000 1 9.60-9.85 26,319-26,354 15,828-16,246 3,15,828-3,16,246
3,00,000 2 9.60-9.85 13,788-13,823 30,916-31,745 3,30,916-3,31,745
3,00,000 3 9.60-9.85 9,624-9,659 46,461-47,726 3,46,461-3,47,726
3,00,000 4 9.60-9.85 7,551-7,587 62,461-64,185 3,62,461-3,64,185
3,00,000 5 9.60-9.85 6,315-6,352 78,914-81,120 3,78,914-3,81,120
3,00,000 6 9.60-9.85 5,497-5,535 95,815-98,526 3,95,815-3,98,526
3,00,000 7 9.60-9.85 4,919-4,957 1,13,160-1,16,399 4,13,160-4,16,399

Amortization Calculator

Following the car loan EMI calculator, you should look at the amortization calculator to get a trickle down of the loan repayment amount year-on-year. With the help of this calculator, you can compute the yearly payments towards principal and interest. Additionally, you can get to know the outstanding balance at the end of each year till the time loan is paid off fully. Now, if you are aware of your loan particulars such as amount, interest rate and the loan tenure, you can easily calculate the amounts of principal and interest payable each year by using the calculator. Below is the table showing the schedule of loan repayment amount at each year.

Year Principal (In Rs.) Interest (In Rs.) Balance Outstanding (In Rs.)
1 31,322-31,593 27,435-28,162 2,68,407-2,68,678
2 34,553-34,765 24,263-24,931 2,33,642-2,34,125
3 38,113-38,254 20,774-21,371 1,95,388-1,96,012
4 42,040-42,090 16,938-17,444 1,53,298-1,53,972
5 46,314-46,375 12,714-13,109 1,06,984-1,07,597
6 50,960-51,155 8,068-8,329 56,024-56,442
7 56,063-56,482 2,952-3,057 0

Car Loan Eligibility at a Glance

Before applying for a car loan, you must be aware of the eligibility parameters set by different lenders. The criteria differ across the lenders, but there is a fair bit of commonality that you can find in the table below.

Eligibility Criteria Details
Minimum age at the time of loan application 18 Years
Maximum age at the time of loan maturity 75 Years
Minimum take home income required ₹ 10,000
Type of Employment Salaried or self-employed
Job Stability/Business Status Salaried must have worked for atleast 2-3 years, while self-employed must be in the business for a minimum of 3 years
Car Type Loan amount varies depending upon the newness or oldness of the car
Car Value Based on the ex-showroom price or on-road price of new car and valuation of the old car, your loan amount eligibility varies
Residence / locality Urban, semi-urban or rural
Stay Period A minimum 1 year of stay at the current residence is required to get the nod for a car loan