Consider a car loan of Rs 8,00,000 at 9.5 percent annual interest over 7 years. The monthly rate is 9.5 percent divided by 12, about 0.792 percent, and the tenure is 84 months. The EMI formula gives a monthly instalment of about Rs 13,075. Over the full 84 months you repay roughly Rs 10,98,316, so the total interest is about Rs 2,98,316, close to 37 percent of the amount financed. A longer tenure like 7 years keeps the EMI low but increases total interest noticeably, while a 5-year tenure on the same loan would raise the EMI but cut the interest. Note that car loan interest is not tax-deductible for a salaried buyer, so the full interest is a real cost.
How it is calculated
The calculator uses the reducing-balance EMI formula, where the instalment equals the loan times the monthly rate times (1 plus rate) raised to the number of months, divided by that growth factor minus one. The monthly rate is the annual rate divided by 12 and the number of months is the years times 12. Total payable is the EMI times the months, and total interest is that minus the loan. The biggest trap with car loans is the flat-rate quote: dealers sometimes advertise a low flat rate, but a flat rate of 6 percent is roughly equivalent to about 11 percent on a reducing balance, so always compare on the reducing-balance rate this tool uses. Choosing a shorter tenure or making a larger down payment reduces the financed amount and the total interest.
Frequently asked questions
Flat vs reducing rate?
Always compare on reducing-balance rate (what this uses). A "flat rate" of 6% is roughly equivalent to ~11% reducing, dealers sometimes quote flat to look cheaper.
Is car loan interest tax-deductible in India?
For salaried individuals buying a personal-use vehicle, car loan interest is not tax-deductible under the Income Tax Act. Self-employed individuals and business owners can claim the interest as a business expense if the vehicle is used for business purposes. There is no deduction available under Section 80C or 80D for personal car loans.
What is a good interest rate for a car loan in India?
As of 2025-26, car loan rates from banks typically range from 8.5 percent to 12 percent per annum on a reducing-balance basis. Public-sector banks tend to offer lower rates than NBFCs. Your credit score, employer category, and loan tenure all influence the rate you are offered.
Does prepayment reduce the total interest significantly?
Yes. Because interest accrues on the outstanding principal, any lump-sum prepayment made early in the tenure reduces the principal immediately and cuts subsequent interest charges. Prepaying in the first two to three years has a much larger impact than the same payment made near the end of the tenure. Check for foreclosure charges, which many lenders waive after 12 to 24 months.