Should you take a car loan or personal loan to buy a vehicle? Compare interest rates, EMI, total cost, and flexibility to make the right borrowing decision.
You're buying a car and need financing. Two options exist: a car loan (secured against the vehicle) or a personal loan (unsecured). Which costs less? Which is more flexible?
Let's compare everything.
Quick Comparison
| Feature |
Car Loan |
Personal Loan |
| Interest rate |
8.5-12% |
10.5-24% |
| Collateral |
Car is collateral |
None (unsecured) |
| Loan amount |
Up to 90-100% of car price |
Based on income |
| Tenure |
1-7 years |
1-5 years |
| Processing fee |
0.5-1% |
1-3% |
| Prepayment penalty |
Often nil |
May apply |
| Approval time |
1-3 days |
1-7 days |
| Car ownership |
Hypothecated to bank |
Full ownership |
Calculate your EMI: Use our EMI Calculator to compare both options.
Interest Rate Comparison
Car Loan Rates (2024)
| Bank/NBFC |
New Car |
Used Car |
| SBI |
8.65% onwards |
9.50% onwards |
| HDFC Bank |
8.75% onwards |
10.00% onwards |
| ICICI Bank |
8.70% onwards |
10.25% onwards |
| Axis Bank |
8.90% onwards |
10.50% onwards |
| Kotak |
8.99% onwards |
10.75% onwards |
| Mahindra Finance |
9.50% onwards |
11.00% onwards |
Personal Loan Rates (2024)
| Bank/NBFC |
Interest Rate |
| SBI |
11.15% onwards |
| HDFC Bank |
10.75% onwards |
| ICICI Bank |
10.85% onwards |
| Axis Bank |
10.99% onwards |
| Kotak |
10.99% onwards |
| Bajaj Finserv |
11.00% onwards |
| Tata Capital |
10.99% onwards |
Rate gap: 2-5% lower for car loans
EMI Comparison: ₹8 Lakh Loan
Scenario: Buying a ₹10 Lakh Car with ₹2 Lakh Down Payment
| Factor |
Car Loan (8.5%) |
Personal Loan (12%) |
| Loan amount |
₹8,00,000 |
₹8,00,000 |
| Interest rate |
8.5% |
12% |
| Tenure |
5 years |
5 years |
| Monthly EMI |
₹16,349 |
₹17,792 |
| Total interest |
₹1,80,940 |
₹2,67,520 |
| Total cost |
₹9,80,940 |
₹10,67,520 |
Car loan saves ₹86,580 over personal loan!
EMI Comparison by Tenure
| Tenure |
Car Loan EMI (8.5%) |
Personal Loan EMI (12%) |
Monthly Difference |
| 3 years |
₹25,237 |
₹26,572 |
₹1,335 |
| 4 years |
₹19,571 |
₹21,063 |
₹1,492 |
| 5 years |
₹16,349 |
₹17,792 |
₹1,443 |
| 6 years |
₹14,115 |
₹15,618 |
₹1,503 |
| 7 years |
₹12,518 |
₹14,096 |
₹1,578 |
When Car Loan is Better
1. Lower Interest Cost
The math is clear—3-5% lower interest saves significant money.
| Loan Amount |
5-Year Interest (Car Loan 8.5%) |
5-Year Interest (Personal 12%) |
Savings |
| ₹5 L |
₹1,13,088 |
₹1,67,200 |
₹54,112 |
| ₹8 L |
₹1,80,940 |
₹2,67,520 |
₹86,580 |
| ₹12 L |
₹2,71,410 |
₹4,01,280 |
₹1,29,870 |
2. Higher Loan Amount
Car loans offer up to 100% financing; personal loans are capped by income.
| Your Monthly Income |
Max Personal Loan |
Max Car Loan |
| ₹50,000 |
₹10-12 L |
Up to car price |
| ₹1,00,000 |
₹20-25 L |
Up to car price |
| ₹1,50,000 |
₹30-40 L |
Up to car price |
3. Longer Tenure Option
Car loans go up to 7 years; personal loans typically max at 5 years.
| Loan Amount |
5-Year EMI |
7-Year EMI |
EMI Reduction |
| ₹8 L (8.5%) |
₹16,349 |
₹12,518 |
₹3,831 less |
| ₹10 L (8.5%) |
₹20,436 |
₹15,648 |
₹4,788 less |
4. Lower Processing Fees
Car loan: 0.5-1% vs Personal loan: 1-3%
| Loan Amount |
Car Loan Fee (0.5%) |
Personal Loan Fee (2%) |
Savings |
| ₹8 L |
₹4,000 |
₹16,000 |
₹12,000 |
| ₹12 L |
₹6,000 |
₹24,000 |
₹18,000 |
When Personal Loan is Better
1. Buying from Individual/Private Seller
Car loans require invoice from dealer. Personal loans have no such restriction.
| Purchase Type |
Car Loan |
Personal Loan |
| New car from dealer |
✓ Available |
✓ Available |
| Used car from dealer |
✓ Available |
✓ Available |
| Used car from individual |
✗ Not available |
✓ Available |
2. Older Used Cars
Most banks don't finance cars older than 5-7 years.
| Car Age |
Car Loan Availability |
Personal Loan |
| 0-3 years |
Yes (full amount) |
Yes |
| 3-5 years |
Yes (70-80% value) |
Yes |
| 5-7 years |
Limited banks |
Yes |
| 7+ years |
Usually no |
Yes |
3. You Want Full Car Ownership
With car loan, the RC shows bank as hypothecation holder until loan closure.
| Aspect |
Car Loan |
Personal Loan |
| RC hypothecation |
Yes (bank's lien) |
No |
| Selling before loan closure |
Complex (need NOC) |
Simple |
| Insurance claim |
Goes to bank first |
Directly to you |
4. You Plan to Sell/Upgrade Soon
Selling a hypothecated car involves:
- Getting NOC from bank
- Buyer paying bank directly
- Paperwork delays
Personal loan car = no such hassle.
5. Loan Amount is Small
For ₹2-3 L loans, the interest difference is minimal, and personal loan is simpler.
| Loan Amount |
Interest Difference (5 years) |
Worth Car Loan Hassle? |
| ₹2 L |
~₹21,000 |
Maybe not |
| ₹5 L |
~₹54,000 |
Probably yes |
| ₹8 L+ |
~₹86,000+ |
Definitely yes |
Hidden Costs to Consider
Car Loan Hidden Costs
| Cost |
Typical Amount |
| Processing fee |
0.5-1% |
| Documentation charges |
₹1,000-3,000 |
| Hypothecation charges |
₹1,000-2,000 |
| Insurance (comprehensive mandatory) |
Higher premium |
| Foreclosure charges |
0-2% (many banks: nil) |
Personal Loan Hidden Costs
| Cost |
Typical Amount |
| Processing fee |
1-3% |
| Documentation charges |
₹500-2,000 |
| Prepayment penalty |
2-5% of outstanding |
| Late payment charges |
2-3% per month |
| Bounce charges |
₹500-1,000 per instance |
The Hybrid Approach
Some buyers use a combination:
Strategy: Car Loan + Personal Loan Top-Up
| Component |
Source |
Amount |
| Car price |
Car loan (90%) |
₹9,00,000 |
| Accessories |
Personal loan |
₹80,000 |
| Insurance |
Personal loan |
₹40,000 |
| Registration |
Savings |
₹80,000 |
Why? Car loan only covers ex-showroom price. Accessories, insurance, and registration often need separate funding.
Decision Framework
Choose Car Loan If:
| Condition |
Check |
| Buying from authorized dealer |
✓ |
| Car is less than 5 years old |
✓ |
| Loan amount > ₹5 lakh |
✓ |
| You'll keep car until loan ends |
✓ |
| You want lowest EMI |
✓ |
Choose Personal Loan If:
| Condition |
Check |
| Buying from individual seller |
✓ |
| Car is older than 7 years |
✓ |
| Loan amount < ₹3 lakh |
✓ |
| You may sell car within 2-3 years |
✓ |
| You want full ownership immediately |
✓ |
Real-World Scenarios
Scenario 1: New Honda City (₹15 L on-road)
| Factor |
Car Loan |
Personal Loan |
| Down payment |
₹3 L |
₹3 L |
| Loan amount |
₹12 L |
₹12 L |
| Interest rate |
8.5% |
12% |
| 5-year EMI |
₹24,523 |
₹26,688 |
| Total interest |
₹2,71,380 |
₹4,01,280 |
| Winner |
Car Loan (saves ₹1.3 L) |
|
Scenario 2: Used Maruti Swift (₹4 L, 6-year-old car)
| Factor |
Car Loan |
Personal Loan |
| Availability |
Limited/None |
Yes |
| Interest rate |
N/A or 12%+ |
12% |
| Processing |
Complex |
Simple |
| Winner |
|
Personal Loan |
Scenario 3: Pre-owned BMW (₹25 L, 4-year-old)
| Factor |
Car Loan |
Personal Loan |
| Loan available |
Yes (up to 70%) |
Yes (income-based) |
| Loan amount |
₹17.5 L max |
₹20 L (high income) |
| Interest rate |
10% |
12% |
| Winner |
Car Loan (lower rate) |
|
Conclusion
| Situation |
Recommendation |
| New car from dealer |
Car loan (3-5% lower interest) |
| Recent used car from dealer |
Car loan (still cheaper) |
| Old used car from dealer |
Personal loan (easier availability) |
| Any car from individual |
Personal loan (only option) |
| Small loan < ₹3 L |
Personal loan (simpler) |
| Planning to sell within 2 years |
Personal loan (no hypothecation) |
Default choice: Car loan for new/recent cars from dealers—the interest savings are too significant to ignore.
Exception: Personal loan when car loan isn't available or you need ownership flexibility.
Calculate your car EMI: Use our EMI Calculator to compare car loan and personal loan options for your budget.
