Car Loan Eligibility, Interest Rates and Documents
A car loan is secured against the vehicle, so rates sit well below a personal
loan. The trade-off is that the car is a depreciating asset: it loses value
faster than the loan reduces in the early years, which is why lenders cap the
tenure and rarely fund the entire cost.
Ex-showroom, on-road, and what actually gets funded
This is where most buyers are caught out. Lenders quote funding against the
ex-showroom price — commonly 80% to 90%, occasionally 100%
for strong profiles. But you pay the on-road price, which adds
registration, road tax, insurance and accessories.
| Component | Typically funded? |
|---|
| Ex-showroom price | Yes — 80–90% of it, sometimes more |
| Road tax and registration | Usually not |
| First-year insurance | Sometimes, at a higher rate |
| Accessories and extended warranty | Rarely |
So a ₹10 lakh ex-showroom car with 85% funding needs roughly ₹1.5 lakh of
margin plus ₹1–1.5 lakh of on-road costs from your own pocket. Ask every
lender to quote against the on-road figure so the comparison is honest.
New versus used cars
| New car | Used car |
|---|
| Indicative rate | About 7%–12% p.a. | About 12%–18% p.a. |
| Funding | 80–90% of ex-showroom | 60–80% of assessed value |
| Tenure | Up to 7 years | Usually up to 5 years, and limited by vehicle age |
| Valuation | Invoice price | Lender's own valuation, which may be below the asking price |
Indicative market ranges, not an offer. Used-car lending is also constrained by
the vehicle's age at the end of the tenure, commonly capped around 10 years.
Who is eligible
- Age — 21 to 60 for salaried applicants, up to 65 for self-employed, measured at maturity.
- Income — commonly ₹20,000–₹25,000 net per month for salaried applicants; filed ITR for the self-employed.
- Stability — a year in the current job, or two to three years in the business.
- Credit score — 750+ gets the advertised rate; below 700 the rate climbs and the funding percentage usually falls.
Hypothecation — and the step people forget
While the loan runs, the lender's name is recorded on the registration
certificate as the hypothecatee. This is normal. What matters is what happens
at the end: once you have repaid, the lender issues a No Objection
Certificate, and you must use it to have the hypothecation removed at
the RTO and get a clean RC.
Skipping this is common and causes real problems years later — you cannot
cleanly sell or transfer the vehicle, and the insurance claim process can be
complicated. Do it within a few weeks of closing the loan, and separately
confirm the loan shows as closed on your credit report.
Documents you will need
| Category | Accepted documents |
|---|
| Identity and address | PAN (mandatory), Aadhaar, passport, voter ID or driving licence |
| Income — salaried | 3 months' salary slips, 6 months' bank statements, Form 16 |
| Income — self-employed | 2 years' ITR, financials, 6–12 months' bank statements |
| Vehicle | Proforma invoice or quotation; for a used car, the RC, insurance and valuation report |
What a weak credit report costs you here
On a car loan a poor report rarely means outright rejection — there is
security, after all. It shows up instead as a higher rate and a lower funding
percentage, which means more cash from you at the showroom and a larger total
outgo over five years.
That penalty is often based on information that is simply wrong: a previous
vehicle loan still showing an outstanding balance after you closed it, an
account marked settled when you paid in full, or the same loan reported
twice. Your score is free from
CIBIL,
Experian,
Equifax and
CRIF High Mark;
we analyse the full report and
dispute the errors that are
raising your rate.
