India’s car loan market is becoming increasingly competitive as banks slash rates to attract borrowers ahead of festive demand and rising passenger vehicle sales. Fresh data compiled by Paisabazaar shows public sector banks are currently offering some of the cheapest car loans in the market, with interest rates starting as low as 7.35%,
while some lenders are charging rates as high as 14%, depending on the borrower’s credit profile.
The difference may appear small on paper, but for buyers financing a ₹5 lakh car loan over five years, the gap between the cheapest and costliest EMI now stretches to nearly ₹1,650 per month, or close to ₹1 lakh over the full tenure.
At the lower end, the monthly EMI can fall below ₹10,000. At the higher end, the EMI climbs to more than ₹11,600. Over the full tenure.
According to the data,:
UCO Bank currently offers the lowest starting rate at 7.35%, with an EMI of roughly ₹9,983 for a ₹5 lakh five-year loan.
Other public sector lenders such as Canara Bank, Bank of Maharashtra and Union Bank of India are also offering rates between 7.45% and 7.50%, keeping monthly repayments close to the ₹10,000 mark.
At the opposite end, Punjab and Sind Bank has upper-end rates stretching to 14%, where the EMI rises to around ₹11,634. Even banks with wide rate bands such as Bank of India and Indian Overseas Bank can see EMIs cross ₹11,000 depending on the borrower’s risk category.
That means borrowers with weaker credit profiles or lower eligibility could end up paying substantially more for exactly the same car.
The data also highlights how aggressively public sector banks are competing against large private lenders in the vehicle finance market. While private banks continue dominating auto financing through dealer partnerships, faster approvals and digital onboarding, many PSU banks are now significantly cheaper on pure interest cost.
For instance, HDFC Bank starts car loan rates at 8.15%, while ICICI Bank starts at 8.35%. IDFC FIRST Bank begins around 8.99%. That pushes starting EMIs above several PSU competitors despite the convenience advantages private lenders typically offer.
But interest rate is only one part of the borrowing equation. Processing charges vary sharply across banks and can materially raise the effective cost of the loan. Some lenders such as Indian Overseas Bank currently charge no processing fee at all, while others levy charges of up to 2% of the loan amount. On a ₹5 lakh loan, that could mean an upfront expense of ₹10,000 before the borrower even drives the car home.
Banks are also increasingly using relationship-based pricing to retain existing customers. Bank of Maharashtra, for example, is offering interest concessions to existing home loan borrowers and long-term customers, while Punjab and Sind Bank is offering selective processing fee discounts under specific schemes.
Rates and charges as of 27th May 2026