Planning A Car Loan? Avoid These Five Costly Oversights

India’s automobile market shows no signs of slowing down. With incomes growing and credit accessibility and disbursal options improving by the day, a record 2.56 crore vehicles were sold in FY25. Passenger vehicle sales reached around 33 lakh units during the April-December period of FY26. Indeed, the country’s auto industry is projected to reach $300 billion by 2026. Vehicle financing has enabled millions of Indians to achieve their mobility aspirations.

Customers can easily get a car loan these days as lenders, along with automobile companies, are providing competitive interest rates, longer loan tenures and super-fast digital approvals. But just because loans are more accessible doesn’t mean you can ignore the finer details. Easier loan eligibility has only made it more likely for borrowers to fall into the trap of uninformed financing.

“Instead of digging deep into loan offerings, many buyers are still led by the sticker price and EMI. While the Equated Monthly Instalment or EMI is an important factor when taking out a loan, there’s a lot more you should know about the interest rate you’re being offered. Effective interest rate, processing charges, insurance add-ons and overall cost of borrowing are some factors that often go unnoticed. And just because the dealer is suggesting you finance this way doesn’t necessarily make it the best deal for you,” says Amit Setia, chief business officer, car loans, Capri Global.

Here are five things you should look out for before you sign on that dotted line.

1. Monthly EMI

Customers sometimes choose a loan with lower EMI and longer tenure, because monthly payments appear cheaper. However, a longer tenure almost always means you’ll pay significantly more interest over the lifetime of the loan. Don’t be fooled by monthly EMIs. Instead, focus on the total amount you will be paying back (including interest and fees). Paying a slightly higher EMI for a shorter tenure could help you save on your total borrowing cost.

2. Compare Loan Offers

Most customers visit a showroom and simply accept the dealer’s offer to facilitate a loan from their preferred bank/NBFC. While this saves you the hassle of going through multiple loan applications, it may not get you the lowest possible interest rate. “Interest rates, processing fees, loan terms, etc., can differ greatly from lender to lender. Even a 1 to 2 per cent difference in interest rate can end up costing you several lakhs over the loan’s tenure. Always compare offers from multiple banks and NBFCs,” says Setia.

3. Loan Terms & Conditions

Most customers will primarily focus on the loan agreement offered, interest rate, and the EMI amount. However, the loan terms and conditions include several other details you might want to look at closely. These can trip you later on, like the requirement of a guarantor and the due course of action in case an EMI payment fails.

Customers are generally shocked to learn about EMI bounce charges if they have never borrowed before. When the EMI amount isn’t deposited due to insufficient funds in the account on the due date, lenders charge a bounce (failure) charge on your account for the attempt. However, your bank will also levy its charges separately. Plus, your missed EMI will also be reported to credit bureaus, thereby damaging your credit score.

4. Credit Score

Your credit score determines your loan eligibility and the interest rate offered to you by the lender. Having a good score can help you increase your chances of getting a lower interest rate. Review your credit report, clear any discrepancies and ensure you have no pending repayments before you apply for a car loan.

5. Not reading the fine print

Don’t just skim through the loan offer document. Apart from the interest rate and the EMI amount, know your borrowings inside out. “Be sure to read about prepayment or foreclosure charges, if any, late payment of EMIs penalties, additional charges such as insurance add-ons, and documentation charges. Also, find out if the loan offers a fixed or floating interest rate. Once you know all the hidden charges – giving your EMI headroom – read the loan agreement document thoroughly before signing up,” says Setia.

Conclusion

A car loan shouldn’t be seen as just a vehicle to take your dream car home. It’s a long-term financial commitment. Take a long-term perspective when you consider your financing options.

“Look beyond just the EMI amount – compare all costs involved and choose a repayment term that best suits your borrowing capacity,” advises Setia.

Every step you take to be well-informed will help you drive down the cost of your loan, ensuring your car doesn’t drive you into more financial commitments in the future.