A car loan works on the same EMI principles as any other loan, but a car is a depreciating asset — unlike a home, its value drops the moment you drive it out. That changes how you should think about tenure, down payment, and total cost.
Typical car loan structure
Loan-to-value: lenders typically finance 80–90% of the on-road price for new cars, meaning a 10–20% down payment is usually required
Tenure: commonly ranges from 1 to 7 years, shorter than home loans
Interest type: almost always reducing balance, similar to home and personal loans
New vs used cars: used car loans typically carry higher interest rates and shorter maximum tenure than new car loans, reflecting higher risk to the lender
Why tenure matters more for cars than homes
A home tends to hold or grow in value over time, so a longer loan tenure isn't necessarily risky from an asset perspective. A car depreciates quickly — often 15–20% in the first year alone. Combine a long tenure with rapid depreciation, and you can end up "underwater" — owing more on the loan than the car is worth — for a chunk of the loan's life.
A good rule of thumb: keep your car loan tenure as short as comfortably possible, ideally under 5 years. A car loan stretched to 7 years to lower the EMI often means paying significant interest on an asset that's lost much of its value long before the loan ends.
Down payment: more is usually better here
Unlike a home loan (where a bigger down payment is a trade-off against liquidity), a larger down payment on a car loan more directly protects you — it reduces the loan amount on a fast-depreciating asset, lowers your EMI, and reduces the risk of owing more than the car's resale value.
New car vs used car loan considerations
Factor
New Car
Used Car
Interest rate
Lower
Higher
Max tenure
Usually longer
Usually shorter
Financing %
Higher (80-90%)
Lower (70-80%)
Before you sign
Compare the on-road price (not just ex-showroom) when calculating how much you're actually financing
Check if the dealer-arranged loan is competitive versus a bank/NBFC loan sourced independently — dealer financing is convenient but not always the cheapest
Factor in insurance, which is often bundled into the EMI but adds to your total monthly outgo
Calculate your car loan EMI
Use the Car Loan tab in the calculator to see your EMI, total interest, and payment breakup for different tenures.