How to pick a car loan this festive season: EMI, tenure and prepayment tips | Personal Finance

Neha Sharma (name changed on request), a 35-year-old Noida resident who works with an information technology company, wants to buy a car this festive season. She is unsure how much to borrow, which tenure to opt for, and which festive offers will deliver worthwhile savings.

 

These are well-founded concerns at a time when car loans are growing bigger and tenures longer. A recent report by TransUnion Cibil, a credit information bureau, shows that the average value of a car loan rose to ₹8.2 lakh in the first half of 2026, up 49 per cent from the corresponding period of 2019. 

 

Right loan size for you 

  

Assess your monthly take-home income, living expenses and existing loans. “All your equated monthly instalments (EMIs) should not exceed 40 per cent of net take-home income,” says Abhishek Kumar, Securities and Exchange Board of India (Sebi)-registered investment adviser and founder, SahajMoney.com. The amount of liquid savings available for the down payment should be another consideration.

 

Keep tenure manageable

 

The average car loan tenure is also rising. The TransUnion Cibil report says that it rose by five months to 62 months between the first half of 2019 and the first half of 2026.

 

“A longer loan lowers the monthly instalment but adds to the total interest,” says Adhil Shetty, CEO, BankBazaar. 

 

Vehicles depreciate rapidly, so a longer repayment period risks leaving the borrower owing more than the car is worth. “Choose the shortest tenure your monthly budget can comfortably accommodate,” says Kumar.

 

For a ₹10 lakh loan at 8.40 per cent over five years, the total interest payable is ₹2,28,102. Extending the tenure to six years raises the interest to ₹2,76,502, an increase of 21.2 per cent.

 

Be prepared for rate hikes

 

Experts believe the repo rate could rise by another 75 basis points after the 25-basis-point increase already announced. Borrowers need not be unduly worried, but should be prepared for the possibility of higher borrowing costs.

 

Both fixed and floating rate loans are available. Borrowers who want greater certainty may choose a fixed rate. “Fixed-rate loans typically carry higher interest rates than floating-rate loans,” says Raoul Kapoor, co-chief executive officer, Andromeda Sales and Distribution.

 

Those who choose a floating rate must have adequate room in their budgets to absorb higher costs.

 

Check prepayment terms

 

Besides interest rates, compare lenders’ processing fees, prepayment charges and late-payment penalties.

 

Most borrowers like to prepay, so flexibility is crucial. “Check whether a lock-in period bars part payments during the initial six to 12 months. Loan agreements also specify limits on pre-payments in a year, such as one or two EMIs. Check the frequency or gap at which part payment can be made,” says Kapoor.

 

Equally important is whether the prepayment results in a reduction in the EMI or the tenure. A reduction in tenure results in higher savings in total interest cost incurred. If you are on a fixed-rate loan, you could be charged a fee that would erode the gains from prepayment.

 

Festive offers 

 

Festive offers this year are a mix of lower costs and easier terms. “Some lenders are waiving processing fees, while others are financing the full on-road price, which can reduce or remove the need for a down payment. Repayment periods can stretch to seven years,” says Shetty. 

 

Some types of concessions are more beneficial than others. “The interest rate matters most because it affects every instalment of the loan. Lower processing fees and no penalty for paying off early also help, while cashback and accessories are one-time gains,” says Shetty. Compare the total repayment cost across offers for a clear picture.