Car Loan Tips: Smart Advice on Financing Your Next Car

Author: Nikhil Ramchandani •Published on: 12/31/2025•5 Minutes
Overview:Buying a car is a proud moment for everyone. It is also one of the most significant financial decisions one makes. And if you're financing it, it is crucial to plan your down payment as it affects your EMI amount, loan tenure, interest payments and even your total cost of ownership. Having said that, to take the financial benefits, the more you can put down as a down payment on a car, the better it is. A few simple car loan tips, dos, and don’ts can help you avoid common mistakes and make your car ownership journey smoother. But first, let's understand what a down payment is.
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Key Highlights:


  • Paying at least 20% (or more) upfront significantly reduces your loan amount, monthly EMIs, and total interest paid over time.
  • Never use personal loans, credit cards, or emergency savings for your down payment. They lead to higher financial stress and long-term costs.
  • Zero down payment offers often come with higher interest rates and EMIs, increasing long-term costs.



What is a Down Payment?


In India, banks and NBFCs generally provide loans of up to 90% of the car's on-road price. The remaining amount you have to pay upfront at the time of purchase is called the down payment. It is advisable to pay at least 20% or more on a new car and at least 10% on a used car. It is always better if you can put down more.


The Dos


1. Plan Your Purchase in Advance


Plan your finances so that the down payment doesn't affect your purchase decision, as well as impact your monthly budgets. Avoid draining all your savings. Leave some funds for emergency usage. If you have to liquidate your investments, choose one with lower penalties and minimal tax implications.


2. Try to Pay a Higher Down Payment


Paying a higher down payment means reducing the loan amount, which reduces EMIs and helps you pay the loan off sooner. For example, if you pay a down payment of ₹5 lakh instead of ₹2.5 lakh, your monthly repayments will drop significantly and you'll end up saving thousands in interest.


One can use an online loan calculator available on various banks' websites to check how a higher down payment will affect your EMIs.


3. Negotiate with the Financer


If you have an excellent credit score (750 and above), consider negotiating the interest amount to reduce your overall financial burden, ensuring more manageable monthly instalments and less upfront cash outflow.


4. Compare Loan Offers


It is important to compare loan offers from multiple banks and NBFCs before making a final decision, as down payment conditions may vary. A higher credit score can help you negotiate a lower down payment and better interest rates, reducing both your upfront cost and overall financial burden.


5. Take Advantage of Seasonal Offers


Most banks and NBFCs generally offer various financial benefits and discounts during festivals and year-end sales, including lower down payment schemes. However, it is recommended to review the terms & conditions, as low-down-payment offers may come with higher interest rates and EMIs.


The Don'ts


1. Avoid Being "Upside Down" on Your Loan


A car loses its value by 20% in the first year. Hence, paying a bigger down payment of 20% or more is recommended. Otherwise, you will end up owing more on a car than the car is worth.


2. Do Not Lower Your Down Payment


Making a smaller down payment might seem tempting, as it will leave some cash in your hands. However, it will also increase your loan burden by increasing the number of EMIs and the interest rate.


3. Say No to High-Interest Credits for Down Payment


Avoid using credit cards or taking a personal loan for the down payment, as they attract much higher interest rates (up to 36%) than the car loan.


4. Consider On-Road Price


When creating your car budget, consider the on-road price of the vehicle, not the ex-showroom price, as this is the actual payout, including the down payment. The on-road price includes the ex-showroom cost, insurance, road tax, and registration charges.


5. Don't Use Your Emergency Funds


Automobiles are depreciating assets, so it is NOT recommended to wipe out your savings to make a bigger down payment. Always maintain at least 3 to 6 months of living expenses as an emergency safety net.


6. Turn a Deaf Ear to Zero Down Payment Schemes


While zero down payment schemes might seem attractive, they usually come with higher interest rates and increase your EMIs. Eventually, you'll end up paying much more over time.


Key Takeaways


Your car’s down payment is more than just a formality — it’s a key financial decision that impacts your loan, monthly budget, and overall cost of ownership. Smart tips on financing a car include paying more upfront, negotiating better terms, and keeping funds ready to reduce your loan burden. However, opting for too little down payment or borrowing at high interest rates can lead to long-term regret. Plan your purchase with the right balance, protect your savings, reduce your debt, and drive away knowing you made the smartest choice for your money and your car.


FAQs


1. What is the minimum down payment for a car in India?
Most banks and NBFCs finance 80–90% of the car’s on-road price, meaning the minimum down payment is usually 10–20%. However, this can vary based on your credit score, income, and the lender’s policy.


2. Can I buy a car with zero down payment?
Some lenders offer zero down payment schemes. But they generally charge higher interest rates and will increase your loan tenure, which means you'll end up paying significantly more for the car.


3. Is the down payment calculated on the ex-showroom price?
No, the down payment is calculated on the on-road price, which comprises the ex-showroom price, RTO charges, road tax and the insurance policy.