Complete Guide to New Vehicle Loans in India 2025
In 2025, new car or two-wheeler loans depend on four levers: credit score, down payment, tenure, and fees. The difference is in the regulatory and digital environment. regulators now compel the most clear, comparable disclosure (KFS + APR), imposed additional limits on penal-interest practices, and Most banks now use V-CIPS and DigiLocker for sales and onboarding. What follows is a lender-focused practical guide to use at a showroom or online shopping.
Recent regulatory updates that are significant (what to insist on)
Key Facts Statement (KFS) + APR (optional)
The RBI’s KFS framework requires lenders to provide a one-page Key Facts Statement that discloses the Annual Percentage Rate (APR), an amortisation schedule, and an itemised fee table for retail loans. APR shows the full loan cost. It makes lender comparison easier.
Penal interest substituted with penal charges (transparent but still expensive)
Because the regulatory shift that came into effect from April 1, 2024, prohibits lenders from charging “penal interest” that is compounding, they may instead charge overt penal charges on delayed EMIs or other delinquencies. Lenders must disclose the charge schedule and they cannot add these charges to the loan amount— predictability is the aim, but borrowers still get real late charges.
Digital KYC & V-CIP (2025 updates)
RBI 2025 KYC FAQs make official Video-Customer Identification Process (V-CIP), DigiLocker e-documents, and business correspondent-assisted digital onboarding. That is, most banks and NBFCs can do end-to-end digital onboarding — assuming your documents are updated in DigiLocker and you complete the V-CIP correctly. Take these digital paths for the speed, but verify documentary data (Aadhaar, PAN, address) match.
Who will be approved by lenders — realistic eligibility checklist
While lender information differs, New car loan underwriting typically includes the following checks:
- Age: average band is 21–65 years on loan maturity date (some lenders allow slightly broader bands).
- Employment: salaried candidates typically require 6–12 months of continuous employment; self-employed typically require 2+ years of business history with 2 years’ ITRs and bank statements.
- Income & DTI: lenders impose debt-to-income requirements; cumulative EMIs are typically required to be ≤ 40–50% of gross monthly income.
- Credit bureau/score: a score of ~750+ is “strong” and gets the best slabs; below this, one can still be financed, but usually at larger APRs or with a co-applicant.
- LTV / down payment: most lenders finance ~90–100% of the on-road price for new vehicles (model/policy subject to); EVs get preferential LTVs or longer tenures at times.
Solutions, quick fixes in case of a weak profile: include a creditworthy co-applicant, make a higher down payment, correct errors on the bureau, or postpone application 30–60 days when you cut card usage.
Interest-rate and pricing landscape (2025 benchmarks)
Interest rates ride on macro policy and lender appetite. Use the APR on KFS for comparison.
- New-vehicle loans (banks): entry slabs for good borrowers typically begin in the high single digit to low double-digit range (e.g., publicly listed slabs and bank pages indicate “start from” rates within this band). Specific slab based on your credit history, tenure, and model. Public sector and large private banks publish grids that borrowers can use for benchmark pricing.
ICICI’s public car-loan grid (effective Apr 1, 2025) shows rates from ~9.15% p.a. Lenders may raise rates for shorter tenures or certain segments. Use these slabs as starting points, but expect them to personalise the final sanction.
- Two-wheeler loans: much greater dispersion. Good bank customers might notice low-teens, but captives and NBFCs price small tickets aggressively, and some product APRs range from mid-teens to 20%+ based on risk. Always compare APRs.
Conclusion: small rate differentials accumulate over 3–7 years — always compare total repayment (EMI × tenure) and APR.
Documentation lenders actually check (brief checklist)
Create a folder with these papers; use DigiLocker where feasible:
KYC & identity: PAN, Aadhaar, or other OVD (passport/driver’s licence/voter ID). DigiLocker copies and V-CIP video capture are accepted.
Income evidence:
- Salaried: salary slips for the last 3–6 months, bank statements for the last 3–6 months reflecting salary credits, Form-16 if called for.
- Self-employed: last 2 years’ ITRs, 6–12 months’ bank statements, GST returns/audited financials if required.
- Vehicle transaction docs: proforma invoice, dealer quotation, insurance quote/policy.
- Mandates & consents: e-mandate (NACH) for EMI collection, bureau check consent.
Pro tip: preload PAN/Aadhaar in DigiLocker and have your address information similar across documents to prevent delay in verification.
Documentation lenders actually check (brief checklist)
Create a folder with these papers; use DigiLocker where feasible:
KYC & identity: PAN, Aadhaar, or other OVD (passport/driver’s licence/voter ID). DigiLocker copies and V-CIP video capture are accepted.
Income evidence:
- Salaried: salary slips for the last 3–6 months, bank statements for the last 3–6 months reflecting salary credits, Form-16 if called for.
Salaried must complete 6–12 months in the current job. Self-employed need 2+ years of business with 2 years of ITRs.
- Vehicle transaction docs: proforma invoice, dealer quotation, insurance quote/policy.
- Mandates & consents: e-mandate (NACH) for EMI collection, bureau check consent.
Pro tip: preload PAN/Aadhaar in DigiLocker and have your address information similar across documents to prevent delay in verification.
Repayment design — tenures, prepayment, and penal charges
Tenures:
- Cars: typically 1–7 years; a few lenders stretch it to ~8 years for EVs/large SUVs.
- Two-wheelers: typically 3–60 months; some NBFCs extend beyond for large bikes.
Rate type: most vehicle loans are fixed-rate EMIs (constant monthly payment). Lenders show any benchmark-linked scheme in the KFS.
Prepayment & foreclosure: Many lenders allow prepayment/foreclosure, but often charge a fee for fixed-rate loans. The KFS must list foreclosure and part-prepayment fees. The RBI’s penalty-interest change still allows foreclosure charges on fixed-rate retail loans for retail fixed-rate products, confirm these charges before signing.
Penal charges: for defaulted EMIs anticipate flat/structured penal charges (revealed) instead of compounding penal interest; these are avoidable though predictable.
Charges and concealed expenses to look out for in the KFS
Request a written fee schedule (the KFS must reflect most of these):
- Processing fee (flat or % of loan).
- Documentation/stamp duty (state law portion; occasionally passed at actual).
- Hypothecation/RC handling / valuation fees.
- Dealers often bundle insurance and accessories, but you can ask for a separate invoice if you don’t want them added to the loan.
- Penal charges on delayed payments and foreclosure fees (if any).
Post-disbursal: hypothecation removal & RC cleanup
When the lender disburses the loan, the RTO/Parivahan records the lender’s name in your vehicle registration.
After you repay the loan in full, collect NOC/Form 35 from the lender. Submit it on the RTO/Parivahan portal to cancel hypothecation so your RC shows you as the sole owner. Keep the NOC and acknowledgement safely.
Step-by-step playbook to negotiate the best deal (actionable)
- 30–60 days prior to application: retrieve your bureau report (CIBIL/others), correct errors, lower credit-card usage <30%, and minimize new enquiries.</mark>
- Shortlist 3 financiers (public bank, private bank, one NBFC/OEM captive) and ask for a KFS/APR quote from all three.
- Check how EMI changes: try different down payments and loan periods on calculators; compare the total amount paid and the APR.
- Talk to the dealer to get better prices, but keep the finance details separate: make sure extra costs like accessories and insurance are listed separately.
- Set the terms clearly: ensure the approval letter includes the KFS/APR, processing fee, and rules for paying early and any extra charges.
- Utilize DigiLocker / V-CIP to accelerate onboarding; authenticate documents and photos prior to initiating video KYC.
- Post-delivery: ensure RC hypothecation entry and monitor the NOC/form on closure.
Common application red flags and how to avoid them
- Name/address mismatches (PAN vs Aadhaar vs bank statements): get reconciled before you apply.
- Thin credit file: Build a small credit history — repaying one personal loan or using a credit card responsibly does the trick.
- High utilization or numerous inquiries: lower card balances and suspend new applications for 30–60 days.
- Low V-CIP quality: do the video KYC in good lighting, with proper documents, and prepare for liveness checks.
Bottom line — what to do immediately
- If you’re going to purchase soon, obtain a credit report, rectify errors, and pre-load DigiLocker with PAN/Aadhaar.
- Before you sign on the dotted line at the showroom: insist on the KFS (APR + fee table) as well as the sanction letter; compare APRs, not EMIs.
- If your score is <700: take a co-applicant or bigger down payment to move to better slabs.</mark>
- Utilize the digital path (V-CIP / DigiLocker) for quicker approval, but ensure that all names and addresses are identical in all documents.
Leave a Reply