Car Loan Interest Rate for All Banks: A Complete Comparison List
Key Highlights:
- Your loan repayment amount includes both principal and interest.
- Four types of financial institutions provide car loans.
- The interest rate on your car loan can be either fixed or floating.
- Maintain a good credit score for your creditworthiness.
Buying a car is a dream for most of us, and nowadays, it has become a necessity for many for convenience and personal mobility. It is a major financial decision that requires proper planning and budgeting. That's where car financing comes into play, serving as a link between your dream and ownership. However, the interest rates applied to a loan can significantly affect your ownership experience. Even a difference of just 0.5-1% can result in thousands of rupees over the loan tenure.
What is a Car Loan?
A car loan is the amount a bank, NBFC or any other financial institution will provide to purchase your vehicle by converting the cost into small monthly instalments over a fixed tenure.
The EMIs (Equated Monthly Instalments) include both the principal amount and interest on your loan. The latter varies depending on its type, credit score, loan amount, loan tenure, and the borrower’s liabilities.
Types of Car Loan Interest
When applying for a car loan, it is important to understand the type of interest you are opting for. Generally, there are two types of interest rates applicable to car loans. These include:
1. Fixed Interest: As the name suggests, a fixed interest rate is something that remains the same throughout the loan tenure, keeping your EMIs constant. And since it is not affected by market conditions, it also makes your budgeting and other financial decisions easy.
2. Floating Interest: A floating interest rate is something that goes up and down with the market. Therefore, your EMIs can increase or decrease, depending on the repo rate announced by the Reserve Bank of India (RBI).
Fixed Vs. Floating Interest Rates
Each type of interest rate has its own merits and demerits. Here, we have compared the key differences between the fixed type and floating interest rates so that you can make an informed decision.
| Fixed Interest | Floating Interest | |
|---|---|---|
| Flexibility | Interest rate remains consistent throughout the loan tenure. | Interest rate may change depending on the rate proportionate to market conditions. |
| Market Relation | Not affected by market conditions. | Affected by market fluctuations. |
| Amount | The interest rate is generally higher than floating rates. | The interest rate is generally lower than the fixed rate. |
| Foreclose Charges | Applicable | Not applicable |
| Risk Factor | Low | High |
| Benefit | Makes it easy to plan your monthly budgets due to fixed EMIs. | Financial planning becomes risky due to fluctuating EMIs. Since the interest rate remains lower than fixed-type rates, it helps save you money. |
| Suitability | Ideal for short-term loan | Ideal for long-term loan |
Why Loan Interest Rates Matter?
The difference between interest rates may seem small and insignificant, but even a slight change can have a significant impact on the overall cost of borrowing and repayment.
For example, on a Rs. 15 lakh loan for 7 years at an interest rate of 8.5% and 10%, the total payable amount will be Rs. 19,95,397 and Rs. 20,91,794, respectively. That’s Rs. 96,397 more for the same car.
Car Loan Providers In India
Four types of financial institutions provide car loans. These include -
- Public sector banks, like SBI and BOB
- Private sector banks, like ICICI and HDFC
- NBFCs, like Tata Capital and Bajaj Finserve
- Manufacturer-like finance arms, like Hyundai Capital and Maruti Suzuki Finance
Car Loan Interest Rate Comparison for Leading Banks
Interest rates for new cars vary between 7.4% and 10%, depending on the bank and loan tenure. Here is an interest rate comparison of all leading banks for a loan tenure of 7 years.
| Name of the Bank | Interest Rate (p.a.) | EMI for Rs.1 lakh for 7 years |
|---|---|---|
| State Bank of India | 8.70% p.a. onwards | Rs. 1,594 onwards |
| Indian Overseas Bank | 7.55% p.a. onwards | Rs. 1,536 onwards |
| Jammu Kashmir Bank | 9.20% p.a. onwards (floating) 8.70% p.a. onwards (fixed) | Rs. 1,619 onwards Rs. 1,594 onwards |
| Canara Bank | 7.45% p.a. onwards | Rs. 1,531 onwards |
| HDFC Bank | 9.00% p.a. onwards (Rack Interest) | Rs. 1,629 onwards |
| ICICI Bank | 9.15% p.a. onwards | Rs. 1,617 onwards |
| Karur Vysya Bank | 9.00% p.a. onwards | Rs. 1,609 onwards |
| South Indian Bank | 8.75% p.a. onwards | Rs. 1,596 onwards |
| IDBI Bank | 7.75% p.a. onwards (floating) 8.65% p.a. onwards (fixed) | Rs. 1,546 onwards Rs. 1,591 onwards |
| Yes Bank | Contact the bank | Contact the bank |
| Karnataka Bank | 8.00% p.a. onwards | Rs. 1,612 onwards |
| Federal Bank of India | 10.00% p.a. onwards | Rs. 1,660 onwards |
| Punjab National Bank(PNB) | Floating: 7.60% p.a. onwards Fixed: 8.60% p.a. onwards | Rs. 1,539 onwards Rs. 1,689 onwards |
| Union Bank of India | 7.40% p.a. onwards | Rs. 1,529 onwards |
| Axis Bank | 8.80% p.a. onwards | Rs. 1,599 onwards |
| Bank of Baroda | Fixed: 8.60% p.a. onwards Floating: 7.90% p.a. onwards | Rs. 1,589 onwards Rs. 1,554 onwards |
| Bank of India | 7.60% p.a. onwards | Rs. 1,539 onwards |
Pro Tip: Financial institutions also charge you a one-time processing fee, documentation charges, and foreclosure charges. So, always compare the terms and conditions of several banks before finalising your car loan.
Factors that Determine Your Loan Interest
Your loan interest may vary based on the following factors: -
- Credit score and loan history
- Loan amount
- Job profile and stability
- Type of interest
- Relationship with the bank
- Market trends
Tips to Get the Best Car Loan
- Maintain your credit score over 750 points.
- Compare interest rates and policy terms of multiple lenders.
- Read the term policies carefully and ask for an amount breakup.
- Negotiate for applicable charges.
- Make a down payment as high as possible (atleast 20% of the on-road price).
- Choose a shorter loan tenure.
FAQs
1. Can a credit score affect my loan eligibility?
Yes, your credit score is the primary factor that determines your creditworthiness.
2. Are interest rates on car loans fixed or floating?
Depending on the lender, the interest rate on your car loan can be fixed or floating.
3. How to get your car loan approved faster?
One should always check their loan eligibility before applying for car finance. And to further boost the process, keep your documents handy.