What Is an Auto Loan?
Eligibility, Interest Rates, Documents & How to Apply
Buying a car is a major financial decision. For many people, paying the entire cost upfront is difficult, so an Auto Loan or Car Loan provides a convenient way to finance the purchase and repay the amount through monthly EMIs.
An auto loan is generally a secured loan, where the vehicle being financed serves as security for the lender. Banks, NBFCs and other financial institutions offer loans for new cars, used cars and, depending on the lender, electric vehicles and other eligible automobiles.
What Is an Auto Loan?
An Auto Loan is financing provided to an eligible borrower for purchasing a vehicle.
Depending on the lender, financing may be available for:
New cars
Used/pre-owned cars
Electric cars
Commercial vehicles
Two-wheelers
Other eligible vehicles
For example, ICICI Bank currently offers new-car loans with rates starting from 8.40% p.a. for loans over 36 months and used-car loans starting from 9.75% p.a., subject to eligibility and other conditions.
The borrower normally pays a portion of the vehicle cost as a down payment, while the lender finances the remaining eligible amount.
How Does an Auto Loan Work?
Suppose you want to purchase a car costing ₹12 lakh.
If you make a ₹3 lakh down payment and receive a ₹9 lakh car loan, the lender pays/finances the eligible amount according to the purchase arrangement. You then repay the loan through monthly EMIs.
The EMI consists of:
Principal – the amount borrowed
Interest – the cost of borrowing
The vehicle remains subject to the lender’s security/hypothecation arrangement until the loan is fully repaid and the relevant formalities are completed.
Who Can Get an Auto Loan?
Auto loans are generally available to salaried employees, self-employed professionals, business owners and other eligible applicants.
Lenders usually assess:
1. Age
Each lender has its own minimum and maximum age criteria. For example, ICICI Bank currently lists an age range of 20–65 years for salaried applicants and 21–70 years for self-employed applicants, subject to its terms.
2. Income
Your monthly income helps determine how much EMI you can comfortably afford.
3. Employment or Business Stability
A stable employment or business history can strengthen the application.
4. CIBIL/Credit Score
Credit history is an important factor in determining both eligibility and the interest rate. ICICI states that its new-car pricing depends partly on the customer’s CIBIL score.
5. Existing EMIs
Existing personal loans, home loans, credit-card obligations and other liabilities can reduce your available borrowing capacity.
6. Vehicle Details
The lender may consider the vehicle model, price, age in the case of a used vehicle and other factors.
How Much Auto Loan Can You Get?
The eligible amount depends on the lender, your income, credit profile, vehicle price and down payment.
Some lenders can finance a substantial portion of the vehicle’s cost. ICICI Bank currently advertises up to 100% on-road funding for eligible car-loan customers, subject to its terms and conditions.
However, borrowers should not automatically assume that every applicant will receive 100% financing.
For example:
Car price: ₹12 lakh
Down payment: ₹3 lakh
Loan amount: ₹9 lakh
A larger down payment can reduce the loan amount and consequently reduce the total interest paid over the loan tenure.
What Is the Approximate ROI on an Auto Loan?
ROI means Rate of Interest.
Auto-loan rates vary according to the lender, vehicle, credit score, loan tenure, customer relationship and other factors.
Current published rates give a useful indication.
SBI currently publishes new-car loan rates around 9.20%–10.15% p.a., depending on the borrower’s CIC score and tenure. Its certified pre-owned car-loan rates are higher, currently around 11.75%–15.25% p.a.
ICICI Bank currently lists:
New car, more than 36 months: 8.40% p.a. onwards
New car, less than 36 months: 10.25% p.a. onwards
Used car: 9.75% p.a. onwards
Therefore, as a broad 2026 indication, a borrower may commonly encounter approximately:
New car: around 8%–11% p.a.
Used car: around 9.5%–15%+ p.a.
However, these are indicative ranges. Your actual rate can be lower or higher depending on your credit profile and lender.
What Documents Are Required?
The exact requirements differ between lenders, but commonly include:
KYC Documents
PAN Card
Aadhaar/identity proof
Address proof
Passport-size photographs
Salaried Applicants
Recent salary slips
Form 16
Bank statements
Employment details
Self-Employed Applicants
ITR
Business proof
Financial statements
Bank statements
GST/business documents where applicable
Vehicle Documents
The lender/dealer may require:
Vehicle quotation
Proforma invoice
Registration details
Insurance information
Used-car valuation documents, where applicable
How to Apply for an Auto Loan
The process is generally straightforward.
Step 1: Decide Your Budget
Calculate the vehicle price and determine how much you can comfortably contribute as a down payment.
Step 2: Check Your Eligibility
Review your income, existing EMIs and CIBIL score.
Step 3: Compare Lenders
Compare interest rate, processing fee, tenure, down-payment requirements and foreclosure/prepayment terms.
Step 4: Select the Vehicle
Obtain the quotation or invoice from the dealer.
Step 5: Submit Your Application
Provide KYC, income and vehicle-related documents.
Step 6: Credit Assessment
The lender checks your income, credit history, repayment capacity and vehicle details.
Step 7: Sanction
If approved, the lender provides the loan amount, interest rate and repayment terms.
Step 8: Disbursement
After completing the required documentation, the loan is disbursed according to the purchase arrangement.
ICICI Bank, for example, describes an online process involving selecting the loan amount and car/dealer, customising the loan, completing details and vKYC before submission