Buying a car on a loan is easy – dealers can arrange finance in minutes. What is harder is knowing whether the monthly payment is right for your budget, and how much the car really costs once interest is added. This guide explains how to calculate car loan EMI with the formula and a worked example, gives car loan EMI tables for ₹5 lakh to ₹15 lakh, shows how the interest rate, tenure and down payment change your EMI, and shares practical ways to pay less.
What Is a Car Loan EMI?
A car loan EMI (equated monthly instalment) is the fixed amount you pay the lender every month until the loan is repaid. Each EMI contains two parts: interest on the outstanding loan and principal that reduces the loan. Banks and NBFCs in India calculate car loan interest on the reducing balance, so the interest part is highest at the start and falls every month.
Car Loan EMI Formula
EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1]
- P = loan amount (on-road price minus your down payment)
- r = monthly interest rate = annual rate ÷ 12 ÷ 100
- n = tenure in months
This is the same formula used for home loans and personal loans – only the rate and tenure differ.
Worked Example: ₹8 Lakh Car Loan at 9% for 5 Years
- P = ₹8,00,000
- r = 9 ÷ 12 ÷ 100 = 0.0075
- n = 5 × 12 = 60
- (1 + r)n = (1.0075)60 ≈ 1.5657
- EMI = 8,00,000 × 0.0075 × 1.5657 ÷ (1.5657 − 1) ≈ ₹16,607
Over 60 months you pay about ₹9,96,401 in total – ₹1,96,401 of interest, or roughly a quarter of the loan amount.
Car Loan EMI Table at 9%
| Loan amount | 3 years | 5 years | 7 years | Total interest (5 years) |
|---|---|---|---|---|
| ₹5 lakh | ₹15,900 | ₹10,379 | ₹8,045 | ₹1,22,751 |
| ₹8 lakh | ₹25,440 | ₹16,607 | ₹12,871 | ₹1,96,401 |
| ₹10 lakh | ₹31,800 | ₹20,758 | ₹16,089 | ₹2,45,501 |
| ₹15 lakh | ₹47,700 | ₹31,138 | ₹24,134 | ₹3,68,252 |
So the EMI for a ₹10 lakh car loan is about ₹20,758 for 5 years at 9%, and the EMI for a ₹5 lakh car loan is about ₹10,379.
Car Loan Interest Rates in 2026
After the RBI's repo rate cuts in 2025, car loan interest rates in 2026 start at roughly 7.45% at some public sector banks for new cars, with most banks charging about 7.5%–10% depending on your credit score, income and the car model. Used car loans cost more – typically about 10%–16% – because the lender's risk is higher. NBFCs and dealer finance are often quicker but may charge more. Always compare the rate you are offered, not just the advertised starting rate.
Here is how the rate changes the EMI on an ₹8 lakh, 5-year loan:
| Interest rate | EMI | Total interest |
|---|---|---|
| 8% | ₹16,221 | ₹1,73,267 |
| 9% | ₹16,607 | ₹1,96,401 |
| 10% | ₹16,998 | ₹2,19,858 |
| 12% | ₹17,796 | ₹2,67,733 |
Every 1 percentage point costs roughly ₹23,000 more in interest over 5 years on this loan.
Choosing the Right Tenure
Car loans usually run from 1 to 7 years. A longer car loan tenure lowers the EMI but increases total interest:
| ₹8 lakh at 9% | EMI | Total interest |
|---|---|---|
| 3 years | ₹25,440 | ₹1,15,832 |
| 5 years | ₹16,607 | ₹1,96,401 |
| 7 years | ₹12,871 | ₹2,81,186 |
Cars lose value quickly – often 15%–20% in the first year. With a 7-year loan, you can owe more than the car is worth for several years. For most buyers, 3 to 5 years is a sensible balance.
How Down Payment Changes Your EMI
Banks typically finance up to 80%–100% of the on-road price for new cars, but a bigger down payment reduces both the EMI and the interest. For a car with an on-road price of ₹10 lakh at 9% for 5 years:
- 10% down (₹9 lakh loan): EMI about ₹18,683
- 20% down (₹8 lakh loan): EMI about ₹16,607
- 30% down (₹7 lakh loan): EMI about ₹14,531
How Much Car Can You Afford? The 20/4/10 Rule
A popular guideline is the 20/4/10 rule: put down at least 20%, keep the loan to 4 years or less, and keep total car costs – EMI, fuel, insurance and maintenance – within 10% of your monthly income. With a monthly income of ₹1,00,000, a ₹10,000 EMI over 4 years at 9% supports a loan of about ₹4 lakh. The rule is strict, but it keeps a car from straining your finances. Check your take-home pay with our salary calculator.
Beware of Flat Interest Rates
Some dealers and lenders quote a flat interest rate, where interest is charged on the full original loan for the whole tenure. It sounds cheaper than it is. A 7% flat rate on ₹8 lakh for 5 years means an EMI of ₹18,000 and ₹2,80,000 of interest – equivalent to about 12.5% on a reducing balance. Always ask for the reducing-balance rate or the APR before signing.
Other Costs of a Car Loan
- Processing fee – often a fixed amount or up to about 1% of the loan.
- Documentation and stamp duty charges.
- Prepayment or foreclosure charges – unlike floating-rate home loans, many car loans are fixed-rate and may charge a fee for early closure. Read the terms.
- Insurance – comprehensive cover is required while the loan is outstanding, and the lender is recorded as the hypothecation holder.
Prepaying a Car Loan
Paying extra reduces interest. On the ₹8 lakh loan at 9% for 5 years, prepaying ₹1 lakh after 12 months and keeping the EMI the same closes the loan in about 52 months instead of 60 and saves roughly ₹39,000 in interest – before any prepayment charge. Check the charge first; if it is high, the saving may be small. Read more in our guide on how to calculate loan EMI.
Tips to Get a Cheaper Car Loan
- Check your credit score before applying – 750+ gets the best rates.
- Compare your bank, other banks and the dealer's offer – ask each for the reducing-balance rate, fees and total cost.
- Negotiate the car price and the loan separately.
- Avoid bundled add-ons you do not need being added to the loan.
- Time your purchase – festive-season offers can include lower rates or waived processing fees.
- Keep the tenure short and the down payment large.
Documents and Eligibility for a Car Loan
Most banks ask for:
- Identity and address proof – Aadhaar, PAN card, passport or voter ID.
- Income proof – last 3–6 months' salary slips and bank statements for salaried applicants; ITRs for the last two years for the self-employed.
- Car quotation – the dealer's pro forma invoice with the on-road price.
- Photographs and a signed application form.
Typical eligibility conditions include a minimum age of about 21, a minimum monthly income set by the bank, stable employment and a good credit history. Pre-approved offers from your own bank can speed things up and sometimes come with a lower rate.
Frequently Asked Questions
How is car loan EMI calculated?
With EMI = P × r × (1 + r)^n ÷ [(1 + r)^n − 1], where P is the loan amount, r the monthly interest rate and n the number of months. Banks use the reducing balance method.
What is the EMI for an ₹8 lakh car loan for 5 years?
About ₹16,607 a month at 9%, with total interest of about ₹1.96 lakh.
What is the EMI for a ₹10 lakh car loan?
At 9%, about ₹31,800 for 3 years, ₹20,758 for 5 years and ₹16,089 for 7 years.
What is the best tenure for a car loan?
Usually 3 to 5 years. Longer tenures lower the EMI but cost much more interest, and the car loses value faster than the loan is repaid.
What are car loan interest rates in 2026?
New car loans start at roughly 7.45% at some banks, with most in the 7.5% to 10% range. Used car loans typically cost 10% to 16%.
Is a flat rate car loan cheaper?
No. A 7% flat rate for 5 years costs about the same as 12.5% on a reducing balance. Always compare reducing-balance rates.
Can I prepay my car loan?
Yes, but many car loans carry a prepayment or foreclosure charge. Check the loan agreement before prepaying.
Can I get a car loan with a low credit score?
Some lenders offer loans to people with lower scores, but at higher interest rates and with a bigger down payment. Improving your score before applying usually saves money.
How much down payment is needed for a car loan?
Many banks finance 80% to 100% of the on-road price of a new car, but putting down 20% or more lowers the EMI and total interest.
Disclaimer: EMI figures use the standard reducing-balance formula and are rounded. Interest rates were checked in September 2026 and vary by lender and borrower. This article is general information, not financial advice.