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The First-Time Car Buyer’s Guide To Choosing A Car Loan In India


by Mahindra Finance


May 13, 2024


5 mins read


Buying your first car is an exciting milestone, but it can also be overwhelming, especially when it comes to financing options. With countless lenders and loan choices available in India, it's essential to choose the right car loan that suits your needs.

In this guide, we'll walk you through the basics of car loans, understanding car loan interest rate, repayment schedules, car loan eligibility terms, and other crucial factors you need to consider when selecting a car loan.

Car loan eligibility

Individuals who meet certain criteria are typically eligible for a car loan. Car loan eligibility requirements commonly include:

  1. Age: Most lenders require borrowers to be at least 18 years old, though some may have higher age requirements.
  2. Income: Demonstrating a stable source of income is essential for loan approval. Lenders assess income to ensure borrowers can afford monthly loan payments.
  3. Credit History: A good credit history improves eligibility and may lead to better loan terms. Lenders evaluate credit scores to assess risk.
  4. Employment Stability: Lenders prefer borrowers with a steady employment history, typically requiring at least six months to one year of continuous employment.
  5. Residency Status: Borrowers must be legal residents or citizens of the country where they are applying for the loan.
  6. Debt-to-Income Ratio: Lenders assess the borrower's debt-to-income ratio, which measures monthly debt payments against gross monthly income, to ensure they can manage additional debt.

Car loan documents list to apply for car loan

Here is the detailed car loan documents list required when applying for a car loan:

  1. Proof of Identity: Any government-issued ID such as a passport, driver's license, Aadhar card, voter ID card, or PAN card.
  2. Proof of Address: Documents like utility bills (electricity, water, gas), rental agreement, passport, or Aadhar card to verify your address.
  3. Proof of Income: Provide salary slips (for the last 3-6 months), income tax returns (ITR), Form 16, bank statements (for the last 3-6 months), or an employment certificate to demonstrate your income.
  4. Employment Details: Include an employment letter or employee ID card to confirm your current job status.
  5. Bank Statements: Submit savings account statements from the last 3-6 months to verify your financial stability.
  6. Vehicle Documents: Present a proforma invoice or quotation from the dealership, along with a copy of the vehicle's registration certificate (RC).

Factors that can affect your car loan interest rate

Several factors influence car loan interest rates and terms such as:

  1. Credit score: Higher scores mean lower rates and better terms, while lower scores may lead to higher rates or denial.
  2. Loan amount and term: Larger amounts or longer terms can result in higher rates due to increased risk.
  3. Vehicle age and condition: Newer vehicles often qualify for lower rates, while older or high-mileage ones may lead to higher rates due to depreciation and potential issues.
  4. Down payment and loan-to-value ratio: Larger down payments can lead to better rates, while smaller ones may result in higher rates or additional requirements.

Things to consider for EMI Payments and Repayment Schedules

When picking a car loan, it's essential to carefully read and understand the loan terms before signing any agreement. Pay attention to the following aspects:

  1. Prepayment and Foreclosure Policies: Check if the lender allows you to make partial prepayments or fully close the loan before the tenure ends. Some lenders may charge penalties for prepayments.
  2. Repayment Options: Look for flexibility in repayment options such as part prepayment or an EMI holiday (a temporary pause in EMI payments).
  3. Processing Fees: Lenders often levy processing fees on car loans. Compare these charges across different lenders to ensure you're not paying excessive fees.


Choosing the right car loan is essential for a smooth financial journey as a first-time car buyer. By considering factors such as interest rates, EMI payments, loan terms, and additional charges, you can make an informed decision that aligns with your financial goals.Remember to use online resources like a car EMI calculator to assess different loan options accurately. With Mahindra Finance you can apply for car loan easily as we competitive interest rates, flexible repayment options, and are a trusted name in exceptional customer service.


Q: What documents do I need to apply for a car loan?

A: The documents required for a car loan application typically include proof of identity, address, income, bank statements, and details about the vehicle you intend to purchase.

Q: What is the eligibility criteria for a car loan?

A: Eligibility criteria vary between lenders but generally include factors such as age, income stability, credit score, employment status, and residence history.

Q: How can I calculate my monthly EMI using a car EMI calculator?

A: To calculate your monthly EMI using a car EMI calculator:

  1.  Enter the loan amount
  2. Input the interest rate
  3.  Select the loan tenure
  4. Click on the calculate button to see your monthly EMI

Q: Can I apply for a car loan online?

A: Yes, most lenders allow you to apply for a car loan online through their website or mobile app. This streamlines the application process and saves time.

Q: Is it better to opt for a longer or shorter loan tenure?

A: The choice between a longer or shorter loan tenure depends on your financial situation and goals. Longer tenures may result in lower monthly EMIs but higher overall interest payments, while shorter tenures have higher EMIs but lower interest costs in the long run.

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