Buying a car — whether new or used — remains one of the biggest financial decisions for most Indian families. For many buyers, a car loan is the key to owning a vehicle without draining savings all at once. But not all car loans are created equal. Differences in interest rates, processing fees, repayment flexibility, and customer support can significantly impact your overall cost.
This guide helps you understand the best car loan interest rates in India (2026) across major banks and NBFCs (Non-Bank Financial Companies). We also explain how these rates work, what affects your eligibility, and tips to get the best deal.
How Car Loan Interest Rates Work in India
Before we compare interest rates, here’s a quick primer on how car loan interest works:
Fixed vs Floating Interest Rates
- Fixed Rate: The EMI (Equated Monthly Installment) remains the same throughout the loan tenure. Predictable but slightly higher than floating.
- Floating Rate: Interest rate can change with market conditions. EMIs can go up or down over time but often start lower.
Reducing Balance Method
Most car loans in India use the reducing balance method. This means interest is charged on the outstanding loan amount, not on the original principal throughout the tenure. This reduces total interest paid compared to flat rate loans.
Loan to Value (LTV)
Banks generally finance 80% to 90% of the car’s value. Higher LTV means you need less upfront down payment, but interest rates and eligibility criteria might change.
Loan Tenure
Car loan tenures in India typically range from 3 to 7 years. Longer tenures reduce monthly EMIs but increase total interest paid.
Top Banks and NBFCs with Best Car Loan Interest Rates in India (2026)
Below is a bank-wise overview of the most competitive car loan interest rates available in India as of 2026. These rates are indicative and subject to change based on RBI policy, lender decisions, and your credit profile.
| Lender | Interest Rate (Approx) | Loan Tenure | Notable Features |
|---|---|---|---|
| State Bank of India (SBI) | 8.50% – 10.50% | Up to 7 yrs | Lowest base rates, SBI YONO app integration |
| HDFC Bank | 8.75% – 10.75% | Up to 7 yrs | Quick processing, flexible top-ups |
| ICICI Bank | 8.99% – 10.99% | Up to 7 yrs | Digital process, pre-approved offers |
| Axis Bank | 9.00% – 11.00% | Up to 7 yrs | Attractive interest bands for salaried |
| Bank of India | 8.70% – 10.90% | Up to 7 yrs | Public sector stability, competitive pricing |
| Punjab National Bank (PNB) | 8.65% – 10.85% | Up to 7 yrs | Offers for government employees |
| Kotak Mahindra Bank | 9.25% – 11.25% | Up to 7 yrs | Quick disbursements, digital offers |
| Bajaj Finserv (NBFC) | 8.50% – 10.50% | Flexible | Pre-approved deals, faster processing |
| Mahindra Finance (NBFC) | 8.75% – 11.75% | Up to 6 yrs | Good deals for rural buyers |
| Tata Capital (NBFC) | 8.99% – 11.99% | Flexible | Easy documentation, good for used cars |
Note: Actual rates offered to you will depend on your credit score, income, loan amount, vehicle age, and lender policies.
Bank-Wise Breakdowns
1. State Bank of India (SBI) — Most Trusted Public Sector Option
Interest Rate: 8.50% – 10.50%
Loan Tenure: Up to 7 years
SBI remains one of the largest and most trusted car loan providers in India. Their interest rates are competitive, especially for salaried individuals and government employees. The bank also offers convenient digital application and tracking via the SBI YONO platform.
Why Choose SBI?
- Wide branch and service network
- Lower rates for high credit scores
- Transparent processing
2. HDFC Bank — Great for Quick Processing
Interest Rate: 8.75% – 10.75%
Loan Tenure: Up to 7 years
HDFC Bank offers an efficient digital application process and flexible repayment features. They are especially popular with salaried customers and professionals.
Key Benefits
- Quick pre-approval options
- Balance transfer facility
- Top-up loans available
3. ICICI Bank — Digital Focused and Feature Rich
Interest Rate: 8.99% – 10.99%
Loan Tenure: Up to 7 years
ICICI Bank is known for its seamless online process, fast disbursals, and competitive interest structure. They also offer pre-approved loan options for existing customers.
Features You Get
- Quick online eligibility check
- Attractive offers via mobile app
- Flexible repayment choices
4. Axis Bank — Strong for Salaried and Self-Employed
Interest Rate: 9.00% – 11.00%
Loan Tenure: Up to 7 years
Axis Bank provides competitive car loans with features tailored to both salaried and self-employed customers. Their documentation process is straightforward, and they often run marketing offers that reduce interest costs or processing fees.
Where Axis Excels
- Good customer service
- Frequent festive offers
- Flexible eligibility criteria
5. Public Sector Banks — Bank of India & PNB
Bank of India and Punjab National Bank continue to offer competitive public sector car loan rates.
Bank of India: 8.70% – 10.90%
PNB: 8.65% – 10.85%
These banks are especially worth considering if you prefer dealing with a public sector institution and want reliable long-term service with comparatively low interest rates.
6. NBFCs — Bajaj Finserv, Mahindra Finance, Tata Capital
NBFCs often compete aggressively on interest rates, processing time, and documentation simplicity.
Bajaj Finserv: 8.50% – 10.50%
Mahindra Finance: 8.75% – 11.75%
Tata Capital: 8.99% – 11.99%
Benefits of NBFC Car Loans
- Fast and minimal documentation
- Pre-approved offers for existing customers
- Flexible loan structures
However, they may charge slightly higher processing fees compared to banks.
Used Car Loans — A Growing Segment
With the rising demand for pre-owned cars, many lenders now offer used car loans with competitive interest rates.
Typical used car loan rates are slightly higher (by 0.25%–0.75%) compared to new car loans due to perceived risk and depreciation.
Banks & NBFCs offering used car loans:
- HDFC Bank
- ICICI Bank
- Bajaj Finserv
- Mahindra Finance
- Tata Capital
Used car loan tenures may be shorter (up to 5–6 years) and vehicle age at the time of financing may affect interest rates.
Factors That Affect Your Car Loan Interest Rate
Even within the same bank, your interest rate can vary based on:
1. Credit Score
A higher credit score (750+) often results in lower interest rates.
2. Income & Employment Type
Salaried applicants with stable income profiles usually receive better rates than self-employed applicants.
3. Loan Amount & Tenure
Higher loan amounts or longer tenures can sometimes attract marginally higher interest rates.
4. Down Payment
A larger down payment reduces the loan amount and may improve your offer rate.
5. Vehicle Type
Interest rates for electric vehicles and eco-friendly cars may be lower due to government incentives.
How to Get the Best Car Loan Interest Rate
Here are practical steps to reduce your interest cost:
1. Compare Multiple Lenders
Don’t settle for the first offer. Comparing bank and NBFC quotes is crucial.
2. Improve Your Credit Score
A better credit score can directly reduce your interest rate.
3. Negotiate Processing Fees
Ask for reduced processing costs or waiver deals.
4. Choose the Right Tenure
Shorter tenures mean lower total interest, but higher EMIs. Balance based on your cash flow.
5. Use Pre-Approved Offers
Many banks send pre-approved car loan offers with better rates to existing customers.
6. Consider Balance Transfer Later
If market rates fall, request a balance transfer to a lower rate lender.
Typical EMI Calculator Example
Let’s say you borrow ₹10 lakh at 9.50% interest for 5 years (60 months):
- Principal: ₹10,00,000
- Interest Rate: 9.50%
- Tenure: 60 months
Your approximate EMI would be around ₹20,900 per month.
The total interest paid over 5 years would be over ₹2.25 lakh.
This example shows the importance of interest rate and tenure selection.
Car Loan Misconceptions Explained
Myth: “Lowest Interest Means Lowest Cost”
Not always. Look at processing charges, prepayment penalties, and other fees.
Myth: “Fixed Rates Are Always Better”
Float rates may start lower and save you money when market rates fall.
Myth: “Only SBI or HDFC Are Safe”
Public and private banks both offer strong options; choose based on total cost and service.
Final Thoughts
Choosing the right car loan can make a big difference in your total cost of ownership. In India’s evolving financial ecosystem, several banks and NBFCs now offer competitive interest rates, quick processing, and flexible repayment options.
As of 2026:
- SBI and Bajaj Finserv often lead on lower interest rates.
- HDFC Bank and ICICI Bank combine competitive rates with strong digital processing.
- Public sector banks are excellent for prepared buyers focused on stability.
- NBFCs are ideal when speed and flexibility matter.
Always compare quotes, understand all charges, and read terms carefully before signing.