How car loan rates changed in India in 2025: Explained

Car loans are an important part of India’s financial ecosystem, helping thousands of people buy vehicles through affordable financing. The cost of borrowing, the interest you pay, moves with broader economic factors in the country.

The interest on floating (variable) rate loans is either linked to an external benchmark (EBLR) or to the bank’s operating and funding costs.

Before 2019, loans were MCLR-linked. Most new loans issued after 2019 are linked to external benchmarks (EBLR). Thus, the EMIs of most retail floating-rate loans issued after October 2019 linked to external benchmarks adjust according to changes in the benchmark (usually the repo rate).

In 2025, loan rates eased significantly in India on the back of repo rate cuts during the year.

2025 repo rate cut journey

The Reserve Bank of India (RBI) has announced four repo rate cuts in 2025:

This brings the total repo rate reduction for 2025 to 1.25%.

How car loan rates changed in 2025

When the RBI initially started cutting the repo rate in February, banks started adjusting their benchmark lending rates, including the EBLR and MCLR.

By June, most banks had announced revised interest rates for their loans, including auto loans. With increased competition, more banks started to join the easing cycle, especially after the June rate cut.

Several major banks, including HDFC Bank, State Bank of India (SBI), ICICI Bank, Bank of Baroda, etc, lowered their loan interest rates for their retail products.

By December 2025, interest rates for loans had significantly reduced across the country. After the recent repo rate cut, leading banks have started lowering their lending rates further.

Most recently, SBI and Indian Overseas Bank (IOB) cut their lending rates by 25 bps effective December 15, in line with the repo rate cut announced on December 5.

How much will you save

A series of repo rate cuts (totalling 1.25% in 2025) have reduced the cost of borrowing in India, including auto loans. Banks have decreased their lending rates multiple times during the year, leading to larger savings on interest for borrowers.

Assuming you took a car loan at 9.75% per annum at the start of 2025, and now the loan rates are at 8.50%. Here is how much you save on EMIs now:

*Yearly savings calculated by multiplying the monthly EMI difference by 12. **EMI calculated at the median interest rate of 9% before the RBI rate cut from Feb 2025 onwards

After a total reduction of 125 bps in 2025, car loan borrowers could save between ₹4,000 and ₹8,600 annually, depending on the loan size and the rates at which they took the loan.

How car loans work

Repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to banks. When the RBI cuts the repo rate, it aims to inject more money into the economy by making borrowing cheaper for consumers as well. After a repo rate cut, loans usually get cheaper, as banks pass the cuts to borrowers (fully or partially).

So, for example, a loan rate can be EBLR + 2.25%. If the repo rate is 5.25%, your interest rate will be 7.5%.

Repo rate cuts also impact MCLR, as when the repo rate decreases, the funding costs for banks go down. Banks pass the rate cuts to borrowers either fully or partially, depending on their interest reset cycle. Generally, the reset cycle is between 1 month and 3 months.

For example: Your loan rate can be MCLR + 1.75%. If the MCLR is 7.5%, your interest rate would be 9.25%.

Currently, the repo rate stands at its lowest in many years, making borrowing affordable for individuals. Importantly, fixed-rate loans don’t get this benefit automatically until they reset their loans or get them refinanced.

However, people aiming to get a car now can get loans at lower interest rates. Remember to check and compare the interest rates and other terms and conditions before finalising a car loan.