How Rising EMI on Car Loan Is Affecting Your Monthly Budget — What Every Car Buyer Should Know

Automobile loans are driving India’s vehicle boom — and quietly tightening the grip on household budgets. In FY24, nearly 80% of passenger vehicle purchases were financed through loans. The share is even higher for two-wheelers, particularly in tier-II and rural markets. But as vehicles get pricier and tenures get longer, EMIs are taking up an increasingly larger share of disposable income.

Why are EMIs rising?

Car prices have surged over the past five years. Regulatory changes like BSVI emission norms, new safety requirements, and higher insurance premiums have pushed up base prices — even for entry-level models like Alto. 

To keep monthly payments affordable, buyers are turning to longer-term loans, often stretching up to seven years. But the downside is steep: longer loans mean higher interest payouts and a longer financial commitment.

A typical Rs 10 lakh car loan with 10% downpayment and a 9.5% interest rate over 7 years results in an EMI of about Rs 14,500. That’s a sizable chunk of income for many middle-class families.

Also Read: Auto Loans in 2025: Interest Rates, EMI Trends, and What Banks Aren’t Telling You | Republic World

A quiet burden

With multiple EMIs — housing, education, and now vehicles — households are stretching their budgets. Many are paying more in interest than they realize. Worse, a long-tenure loan often outlasts the useful life of the vehicle, especially for two-wheelers.

In lower-income households, especially in small towns, zero down payment bike loans are popular. But missed payments are common and can lead to repossessions or credit score damage.

What’s changing?

The shift in vehicle financing isn’t just economic — it’s cultural. Easy financing via digital platforms and dealer tie-ups has normalized credit use. However, financial awareness hasn’t kept pace.

Experts recommend keeping auto loan EMIs within 10–15% of monthly income and avoiding loans beyond five years. However, few follow this advice.

The big picture 

Vehicles are no longer just assets — they’re recurring liabilities. And for many Indian households, EMIs are becoming the cost of aspiration. As incomes stagnate and prices climb, India’s “EMI Nation” may find itself on a long road to repayment.