Car Loan EMI in 2025: Buying a Car Has Become Cheaper—Here’s How Rate Cuts and GST Relief Lower Your Costs

Buying a car in 2025 has become significantly more affordable for Indian consumers, thanks to two powerful factors working together: a sharp reduction in interest rates by the Reserve Bank of India (RBI) and a major cut in Goods and Services Tax (GST) on select car categories. Lower loan rates have reduced monthly EMIs, while revised GST slabs have brought down ex-showroom prices—delivering double savings for buyers. Here’s a clear, detailed breakdown of how these changes impact your wallet.

Why Car Loans Are Cheaper in 2025

Millions of Indians rely on car loans to purchase their vehicles, and the interest on these loans closely tracks the country’s monetary policy. Since 2019, most floating-rate retail loans—including car loans—have been linked to an external benchmark such as the repo rate (EBLR). As a result, when the RBI cuts rates, EMIs fall quickly.

In 2025, that’s exactly what happened. As the repo rate dropped to multi-year lows, banks passed on the benefit to borrowers by reducing car loan interest rates. On top of that, a GST revision in September 2025 lowered car prices—making overall ownership cheaper than it has been in years.

RBI’s Repo Rate Cuts in 2025: A Quick Timeline

The RBI delivered a cumulative 1.25 percentage point cut in 2025:

• February: 25 bps cut → Repo at 6.25%

• April: 25 bps cut → Repo at 6.00%

• June: 50 bps cut → Repo at 5.50%

• August & October: Rates held steady

• December: 25 bps cut → Repo at 5.25%

This December move brought the repo rate to one of its lowest levels in several years—directly benefiting new car loan borrowers.

How Banks Reduced Car Loan Interest Rates

As soon as repo rate cuts began, banks adjusted their EBLR and MCLR. From June onward, most major lenders—including SBI, HDFC Bank, ICICI Bank, Bank of Baroda, and others—reduced interest rates on retail loans such as car loans.

By year-end, competition intensified. Several banks cut rates multiple times, and in mid-December, lenders like SBI and Indian Overseas Bank announced another 25 bps reduction, further easing borrowing costs.

How Much EMI Can You Save?

Even a modest rate cut can translate into meaningful EMI savings—especially on longer tenures. Consider a 5-year car loan where interest falls from 9.50% to 8.25%:

Over longer tenures, total savings can exceed ₹50,000, substantially reducing the overall cost of borrowing.

EBLR vs MCLR: Why EMIs Drop Faster Now

• EBLR-linked loans: These are directly tied to the repo rate. If your loan rate is, say, EBLR + 2.25% and the repo is 5.25%, your effective rate becomes 7.50%. Any repo cut reflects quickly in EMIs.

• MCLR-linked loans: These depend on banks’ funding and operating costs. While rate cuts do help, EMI reductions occur only after the reset period (typically 1–3 months).

Borrowers on EBLR-linked car loans benefit the fastest from RBI’s actions.

GST Cut Adds a Second Layer of Savings

Interest rate relief isn’t the only advantage in 2025. A GST reform effective September 22, 2025, simplified tax slabs and reduced rates on select items—including small and entry-level cars.

The GST on these vehicles was reduced from around 28% (GST + cess) to 18%. This change directly lowered ex-showroom prices.

Example:
A car priced at ₹10 lakh earlier (including ~28% tax) could now cost approximately ₹8.9–9.0 lakh after the GST cut—delivering a ₹1–1.1 lakh reduction upfront.

Lower prices also mean smaller loan amounts, which further reduce EMIs and total interest paid.

Is This a Good Time to Take a Car Loan?

With the repo rate at multi-year lows and GST relief reducing vehicle prices, 2025 is one of the most buyer-friendly periods for car purchases in recent memory. New borrowers benefit immediately from lower rates, while existing borrowers with floating-rate loans may also see EMIs reset downward.

Fixed-rate loan holders may need to refinance or wait for reset options to gain similar benefits. Regardless, comparing offers across banks and checking terms carefully remains essential.

Bottom Line

Two powerful tailwinds—RBI rate cuts and GST reductions—have made car ownership cheaper in 2025. Lower EMIs, reduced car prices, and competitive bank offers together create a strong case for buyers planning a new purchase. If you’re considering a car this year, evaluating loan options now could help you lock in substantial long-term savings.

Disclaimer: Interest rates and tax policies are subject to change. Readers should compare lender offers and consult financial experts before taking a loan.