1. Why take a car loan?
- Can assist in acquiring the car you need without any additional funds.
- Can spread cost over a period of months or years elaborate.
- Develops credit by repaying it regularly.
- Provides tax relief on certain transactions (such as for business purposes).
2. Why consider early repayment?
- The length of time a loan will last, the lower the interest rate you pay.
- Free up cash: Withdrawing the loan, your monthly expenses become more manageable.
- The car can be fully owned if you pay early, without any lender lien or hypothecation. What are the advantages?
- Acquiring a loan responsibly can enhance your financial standing, but be mindful of the potential impact on credit mix.
3. Drawbacks & caution:
- Prepayment charges may be included in the payment process for early years. The initial 3% fee at ICICI is followed by a 2% charge for the next 24 months, with no additional charges.
- The use of a lump sum to repay an opportunity cost may prevent the return from investments that could yield higher returns.
- Claiming a loan can temporarily affect your credit score, but it may have short-term effects. However.
The current interest rates on car loans in India as of Mid-2025
| Bank / Type | Interest Rate (p.a.) |
|---|---|
| State Bank of India (SBI): New cars | 8.30%*, Electric vehicles |
| SBI electric vehicles promotion | 8.15%* |
| Union Bank of India | From 7.70% |
| Punjab National Bank | Floating 7.85%, Fixed 8.85% |
| Canara Bank | 8.05% onwards |
| Bank of India | 8.00% onwards |
| South Indian Bank | 8.75% onwards |
| IDBI Bank | Floating 8.40%, Fixed 8.90% |
| HDFC Bank | 8.90% onwards, up to 11% |
| ICICI Bank | Starting 9.10% |
| Axis Bank | 8.90% onwards |
| Bank of Maharashtra | 7.70% to 12.00% (based on credit) |
✳️ SBI's offer for EVs is 8.15 per cent, while normal internal-combustion car loan rates start at 8.30 percent.
📉 Bank of Baroda and CanaraBank among others recently decreased MCLR by 5-50 basis points, leading to slightly lower rates for floating-rate loans. This is in contrast to other banks.
What is the step-by-step process for obtaining an early car loan?
- Assess the pre-payment penalties, lockin period or notice requirement in your loan agreement.
- Use online banking or ask your lender for the current payoff amount to check out any outstanding balance.
- Determine the amount of interest saved by comparing savings with penalty fees to determine if prepayment is financially beneficial.
- Finance advice: Don't rely on emergency savings; instead, utilize bonuses or unexpected profits.
- Repay some or all of your outstanding balance by using an online loan portal, either at the bank or in person.
- Confirmation: Present a NOC and loan closure certificate.
Final Thought
By taking a car loan, you can pay it off early while driving the car, which frees up your income and gives you full ownership. How does this work? Ensure that the conditions of your loan are transparent, and evaluate whether saving or prepayment fees are in line with your overall financial plan.