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This article explains how car loan interest rates in India changed over 2025, a year marked by a series of monetary policy actions by the Reserve Bank of India (RBI). It explores why borrowing costs eased, how lenders adjusted their pricing, what this meant for borrowers in practical terms (EMI savings), and how different types of car loans behaved. 

The piece also looks ahead into how these trends may shape consumer demand and auto financing in early 2026.

A Year of Rate Changes for Car Loans in India

Car loans are a major component of retail financing in India. They help millions of consumers purchase new and used vehicles by spreading the cost over long tenures—often up to seven or eight years. In 2025, borrowers saw meaningful changes in car loan interest rates as India’s central bank, the Reserve Bank of India (RBI), cut the repo rate multiple times. These policy shifts were aimed at supporting economic growth by lowering borrowing costs.

At the start of 2025, many car loan products carried interest rates in the high single digits or low double digits, depending on lender, borrower credit profile, and whether the loan was for a new or used vehicle. But as the year progressed and the RBI eased monetary policy—starting in February and culminating with repeated cuts including a notable 50 basis points reduction in June—interest rates for auto loans started trending downward.

However, while the repo rate cuts have generally lowered borrowing costs, the exact impact on your car loan depends on how quickly banks and non-bank financial companies (NBFCs) pass on rate cuts, whether your loan is linked to an external benchmark, and competitive dynamics in the auto-finance market.

With that backdrop, let’s examine how car loan rates moved in India over 2025 and what that meant for borrowers.

How Car Loan Rates Changed in 2025

In 2025, the RBI announced a total of 1.25 percentage points (125 basis points) of repo rate cuts through several Monetary Policy Committee (MPC) meetings. These cuts occurred in February, April, June (a 50-bps cut), and December 2025. By December, the repo rate stood at 5.25%, the lowest in years.

Because most new floating-rate retail loans in India (including car loans) are linked either to an external benchmark (EBLR) or to a lender’s internal Marginal Cost of Funds Based Lending Rate (MCLR), these repo rate cuts tend to reduce the overall cost of borrowing. EBLR-linked loans adjust more quickly with policy changes, and many newer car loans fall under this category.

By mid-2025, major lenders including SBI, HDFC Bank, ICICI Bank, Bank of Baroda and others announced reductions in their lending rates, including auto loans. Competitive pressures after the June 2025 rate cut encouraged borrowers to see wider transmission of the RBI’s policy stance.

Table 1: Representative Car Loan Interest Rates in India (2025)

Here’s an illustrative look at prevailing car loan interest rates in late 2025 across various lenders. These figures represent typical ranges for new car loans as offered by major banks:
 

The table above shows interest rates clustering in the 8.15–9.80% range for new car loans with mainstream banks by late 2025, with used-car loans often starting slightly higher or at similar levels. These rates are generally lower than what many borrowers saw at the start of the year, reflecting the cumulative impact of policy rate cuts and competitive pressure.

Practical Impact: How Much Borrowers Saved

The Upstox article includes a helpful example of EMI savings. Suppose a borrower took a car loan at 9.75% per annum at the start of 2025, and current prevalent rates moved down to around 8.50% by year-end. Depending on the loan size, EMIs would be lower under the new rate scenario, leading to real savings.

For instance:

• On a ₹5 lakh loan, annual savings could be around ₹4,320.
• On a ₹10 lakh loan, yearly savings might near ₹8,640.

This shows the tangible benefit to borrowers from policy-driven rate cuts and competitive transmission—though actual savings for any individual depend on specific terms, reset cycles, and how quickly a lender adjusts interest rates.

Why Rates Changed: Transmission of RBI Policy

To understand why car loan rates dropped in 2025, it helps to recall how the RBI’s monetary policy works. The repo rate is the rate at which the RBI lends to commercial banks; when this rate goes down, banks’ funding costs tend to fall. In turn, lenders can lower lending rates for borrowers. This effect is stronger for loans linked to external benchmarks like EBLR, which adjust more quickly when the repo rate changes.

Throughout 2025, the RBI’s easing cycle, including the 50 basis points cut in June and a further 25 basis points cut in December, encouraged lenders to trim their benchmark rates and pass some of the benefits to borrowers. However, the speed and completeness of transmission vary between banks, depending on their cost of funds and competitive strategies.

Subheading: Fixed-Rate vs Floating Rate Car Loans

Not all car loans are identical in how they respond to interest rate changes. Most modern car loans in India are floating rate, meaning monthly EMIs or outstanding interest portions change when benchmark rates reset. Old-style fixed-rate car loans may not automatically benefit from repo rate cuts until a reset or refinancing. 

Therefore, borrowers with older fixed-rate loans might not immediately see savings unless they refinance.

Conclusion

Overall, 2025 was a favourable year for car loan borrowers in India. Multiple rate cuts by the RBI, culminating with the repo rate at just 5.25%, helped push down lending rates. Banks and NBFCs responded to competitive pressures by pricing auto loans more attractively, with some offers starting at under 8% in festive-season deals.

However, the full benefit to any given borrower depends on how quickly their lender passed on rate cuts, the type of interest rate linked to the loan, and broader market conditions. Borrowers should compare offers from multiple lenders, consider used vs new car loan pricing, and account for additional charges like processing fees when planning their purchase.

Looking ahead to 2026, if the RBI maintains or further adjusts interest rates based on macroeconomic conditions, the dynamics of car loan pricing will continue to evolve — making it vital for borrowers to stay informed and shop smart.

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About the Author

LoansJagat Team

‘Simplify Finance for Everyone.’ This is the common goal of our team, as we try to explain any topic with relatable examples. From personal to business finance, managing EMIs to becoming debt-free, we do extensive research on each and every parameter, so you don’t have to. Scroll up and have a look at what 15+ years of experience in the BFSI sector looks like.