Should You Take a Personal Loan for Car Downpayment?

Do you really want to take on two loans at the same time just to buy a car? That’s the real question most people don’t think about.

According to a report by The Economic Times, banks in India typically finance up to 80-90% of a car's on-road price, leaving buyers to arrange the remaining 10-20% as a down payment. That's when personal loans come in. Quick money. No questions. No security. But, does it make financial sense?

Let's break it down. No confusing words. No random theory. Just real talk.

What Is This Fuss About Personal Loans for Car Downpayment?

Let’s understand this first.

Cars are getting more expensive. A mid-range hatchback costs around ₹7,00,000. And banks? They won’t give you 100% loan. You need to put at least 10-25% of the car's price as a downpayment. 

That's roughly ₹1,00,000 to ₹2,00,000 upfront. If you don’t have that cash, your options are few, borrow from family, use your savings, or take a personal loan.

But here’s where the trap begins.

Personal loans look clean on paper. No collateral. Quick approvals. But high interest. You are basically adding a second EMI to buy one asset.

Should You Mix Two Loans for One Car? Let's Go Deep

Taking both car loan and personal loan together might feel like a smart fix — until those EMIs start hitting your bank. Let's use a common Indian scenario:

Car Price: ₹10,00,000
Loan Coverage: 90% car loan → ₹9,00,000
Downpayment Needed: ₹1,00,000

If you don’t have ₹1,00,000, here’s what usually happens:

• You take a car loan of ₹9,00,000 for 5 years @ 9%
• EMI = ₹18,639
• Then you take a personal loan of ₹1,00,000 for 3 years @ 15%
• EMI = ₹3,464
• Total EMI = ₹22,103 every month

That’s more than what many people earn in a month if you're under ₹35,000/month salary.

Now imagine a small delay in salary. Or a medical bill. You’re stuck. You’ll either delay one EMI or end up paying penalties. This is not a rare case. It’s happening in cities and towns every day.

Real Stats You Can’t Ignore

In 2024, a survey by a top Indian bank showed that over 36% of personal loan borrowers were using the funds for car-related expenses , either upgrades, repairs or downpayment.

Another report revealed almost 45% of people who took personal loans for vehicle-related needs struggled to repay within 2 years, mainly because of dual EMI pressure.

Read More – What is a Down Payment? Definition, Role & Loan Impact

What’s a Smarter Way to Handle This?

Here’s where practical finance kicks in. Use the “20-10-4 Rule” that Indian finance coaches often suggest:

• 20% Downpayment
• 10% of your salary as EMI max
• 4 years or less loan tenure

So, if you earn ₹50,000 a month:

• EMI should not cross ₹5,000
• Downpayment should be minimum ₹1,00,000
• Loan period max 4 years

But if your EMI is crossing ₹20,000? That’s a red flag.

Now look at this simplified plan.

This method works. It's boring, but it works. It saves you the headache of juggling two high-interest loans.

With & Without Personal Loan

Let’s get into some numbers again.

What Are The Alternatives?

Also Read  -How To Calculate Home Loan EMI in 2025 – Step-by-Step Guide

Let’s not stop at problems. Here’s what you can do instead:

1. Use Recurring Deposits (RDs)

Start an RD for 12 months. Put ₹8,000 per month. In a year, you’ll have enough to cover ₹1,00,000+ with interest.

2. Borrow from Family

Avoid interest. Repay them slowly. Make an agreement if needed, but stay away from loans unless you really need one.

3. Buy a Used Car

Less downpayment, smaller loans. A ₹3,00,000 used car needs just ₹30,000 downpayment. Pay off early, then upgrade in 2 years.

4. Wait and Save

The most ignored option. Wait for 6-8 months. Save that EMI amount every month. You’ll thank yourself later.

Final Thoughts

Buying a car is exciting, but taking two loans to do it can turn that joy into stress very fast. A personal loan may seem like an easy way to arrange the downpayment, but in the long run, it can cost you more than you expect.

If you can wait and save, that’s the better choice. Even borrowing from family or buying a used car is smarter than carrying two EMIs every month. Always check your budget, calculate your monthly EMI limits, and think long-term before deciding.

A car should give you freedom, not financial pressure. So, plan wisely, buy smart, and avoid debt traps.

FAQs

1. Is taking a personal loan for a car down payment in India legal?
Yes, it's legal. But it’s not advised by most financial planners because you take two loans for one car. You also weaken your CIBIL score faster if you miss any EMI.

2. Can I negotiate a lower car loan if I pay a larger down payment?
Yes, banks may offer better interest if you pay a higher down payment. It also shows stronger repayment ability. Use it as a bargaining chip.

3. What is the minimum CIBIL score is required for a car loan and personal loan in India?
For car loans, banks look for a score above 700. For personal loans, they may want 750 or more. Low score = higher interest = loan rejection possible.

4. Is delaying the car purchase better than taking a personal loan?
Yes, if your finances are tight. Delaying 6 months and saving ₹20,000/month gives you ₹1,20,000. That’s better than paying ₹1,25,000 in interest later.

5. Can I prepay the personal loan after car purchase?
Yes. Most banks allow foreclosure after 6 months. But they may charge 2-4% as penalty. Always check before signing the loan document.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?