Last updated 12 Nov 2026
Before you sign a car loan, check ten things: what you can afford each month, the down payment, the APR and total cost, every charge, the tenure, the prepayment terms, the insurance you must carry, how hypothecation works, the paperwork you will get, and what happens if you miss an EMI. A car loan is secured by the car, so a missed payment can cost you the vehicle. Ten minutes on this list can save a year of regret.
This checklist works for a new or used car. Each lender sets its own terms, so ask for the Key Fact Statement and read it. For current rates, see the interest rates page; this guide does not quote rates.
The ten checks
The ten-point checklist
| # | Check | What to ask or do |
|---|---|---|
| 1 | Monthly budget | Keep all your EMIs, including this one, within a share you can sustain; use the FOIR guide as a reference |
| 2 | Down payment | Decide how much you will pay upfront and what that leaves to borrow |
| 3 | APR and total cost | Ask for the APR and the total amount you will repay, not just the rate |
| 4 | Charges | List processing fee, documentation, stamp duty, penal and foreclosure charges, all set by the lender |
| 5 | Tenure | A longer tenure lowers the EMI and raises the total interest; test both |
| 6 | Prepayment and foreclosure | Ask for the rule in writing and the exact charge, if any |
| 7 | Insurance | Check the cover the lender requires and who chooses the insurer |
| 8 | Hypothecation | Ask how the lender is recorded on the registration certificate and how it is removed |
| 9 | Paperwork | Read the agreement and sanction letter; get copies of everything you sign |
| 10 | Missed EMI rules | Ask about penal charges, the grace period and what the lender can do |
1 and 2: Budget and down payment
Add up your monthly obligations: rent or home EMI, other loans and card payments. The lender will compare them with your income using the FOIR. You should do the same before the lender does. Then choose a down payment. A larger one reduces the loan and the interest. See choosing the right car loan down payment.
Worked example: a car costs ₹9,00,000 on the road. With a down payment of ₹2,00,000 you borrow ₹7,00,000. If you can raise ₹3,00,000, you borrow ₹6,00,000, which lowers each EMI and the total interest over the same tenure. Use the EMI calculator to see both.
3 and 4: APR and charges
The headline rate is not the cost of the loan. The APR brings in fees so that offers can be compared, and the Key Fact Statement shows it. Charges are set by the lender. Common ones include processing fee, documentation charge, stamp duty, charges for a bounced instalment, and a charge for closing the loan early. Ask which are one-time, which recur, and whether GST applies. See GST on loan charges.
5 and 6: Tenure and prepayment
A long tenure feels easier each month but costs more in interest overall, and you may owe more than the car is worth for longer. A short tenure costs less overall but raises the EMI. Pick the shortest tenure you can pay comfortably. Then ask about part-payment and early closure. Car loans are often fixed-rate, so the RBI rule that bars prepayment charges on floating-rate loans to individuals for non-business purposes (Pre-payment Charges on Loans Directions, 2025) may not apply to yours. Read your agreement and see loan prepayment and foreclosure.
7: Insurance
Lenders usually require comprehensive insurance for as long as the loan runs, because the car is their security. Check the cover, the insurer, the premium and whether you can choose your own insurer. Renew on time; a lapse can put you in breach of the agreement. Do not let the premium be bundled into the loan without understanding that you are paying interest on it.
8: Hypothecation
With a car loan, the car is hypothecated to the lender. The lender is usually recorded on the registration certificate (RC) as the financier, and you cannot sell the car without clearing the loan. After you repay, the lender gives you papers to have the entry removed. Keep them safe and follow up until the record is updated. See RC book.
9 and 10: Paperwork and missed EMI rules
- Read the sanction letter and the loan agreement in full before you sign.
- Never sign blank forms or cheques with the amount left empty.
- Keep copies of the invoice, insurance, RC and every receipt.
- Ask about the grace period and penal charges for a late EMI.
- Ask what the lender does if you miss several EMIs, including repossession rules in the agreement.
- Make sure the loan amount is paid to the dealer or into your account by the lender, and that you receive a receipt.
Frequently asked questions
Should I take a car loan from the dealer or from a bank?
Compare both on APR, total cost and charges. A dealer may offer convenience; a bank or NBFC may offer different terms. Ask each for the Key Fact Statement and compare.
Does a longer tenure make a car loan cheaper?
It lowers the EMI but raises the total interest. Choose the shortest tenure you can manage, and test two tenures in the calculator.
Who owns the car during the loan?
You do, but the lender is recorded as the financier through hypothecation. You cannot sell the car without closing the loan.
Can I repay a car loan early?
Usually yes, but charges are set by the lender and stated in your agreement. Ask for the rule before you sign.
Do I need to buy the lender's insurance?
Lenders usually require comprehensive cover, but rules on the choice of insurer differ. Ask whether you can use your own.
What happens if I cannot pay an EMI?
Tell the lender early. Penal charges and a credit score impact can follow, and a secured lender can repossess after following its process. Read the clause before you sign.
Related reading: New car loan, Used car loan, Car loan down payment, Car loan mistakes to avoid, How to get a lower car loan rate, Key Fact Statement and APR, Glossary: hypothecation, EMI calculator.
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