What you need to know
A car loan is a secured term loan. The bank pays the dealer, the car is registered in your name with the bank’s hypothecation noted on the RC, and you repay in monthly EMIs. When the loan is fully repaid, the bank issues an NOC so the hypothecation can be removed.
Lifecycle of a car loan
- QuotationDealer gives an itemised on-road price.
- SanctionBank checks credit score, income and car price; issues sanction letter and Key Facts Statement (KFS) with APR.
- MarginYou pay the down payment (0% – 20%+ depending on bank and model) to the dealer.
- DisbursalBank pays the dealer directly — not you.
- RegistrationRTO registers the car with hypothecation to the bank (Form 34 endorsement on the RC).
- EMIsPaid by NACH / e-mandate; each EMI covers interest on the outstanding balance plus some principal.
- ClosureAfter the last EMI or foreclosure the bank issues NOC + Form 35; you apply to the RTO to remove hypothecation.
How EMI interest works
Banks charge interest on the reducing balance: each month’s interest is the outstanding principal × annual rate ÷ 12. Early EMIs are mostly interest and later ones mostly principal. Some dealers quote a “flat” rate on the original amount — a flat rate of about 5% is close to a reducing rate of about 9%, so always compare the reducing rate or APR.
EMI examples
| Loan amount | EMI @ 8.50% | EMI @ 9.50% | EMI @ 11.00% |
|---|---|---|---|
| ₹5,00,000 | ₹10,258 interest ₹1,15,496 | ₹10,501 interest ₹1,30,056 | ₹10,871 interest ₹1,52,273 |
| ₹8,00,000 | ₹16,413 interest ₹1,84,794 | ₹16,801 interest ₹2,08,089 | ₹17,394 interest ₹2,43,636 |
| ₹12,00,000 | ₹24,620 interest ₹2,77,190 | ₹25,202 interest ₹3,12,134 | ₹26,091 interest ₹3,65,454 |
Tenure 5 years, reducing-balance EMI.
Frequently asked questions
Who owns the car during the loan?
You are the registered owner; the bank has a charge (hypothecation) on it until the loan is repaid, so you cannot sell it without clearing the loan or the bank’s consent.
For information and comparison only. Loan terms, rates and rules change — confirm with the lender and read the Key Facts Statement before borrowing.