GST cut makes small cars cheaper: Latest loan rates of various banks

Lower taxes and competitive loan rates mean people planning to buy cars can save money in September

The Goods and Services Tax (GST) Council on Thursday reduced the tax on small cars from 28 per cent to 18 per cent, likely nudging Indians to consider taking loans to buy cars.

 

Banks have kept car loan rates competitive, giving buyers an opportunity to stretch their rupee further.

 

Best Car loan rates in September

 

According to data from Paisabazaar.com, interest rates on new car loans start as low as 7.60 per cent per annum. Here are terms of various lenders:

 

Lowest rates: UCO Bank (7.60 per cent), Canara Bank (7.70 per cent), and Bank of Maharashtra (7.70 per cent).

 

Most competitive EMI: For a Rs 5 lakh loan over 5 years, EMIs start at about Rs 10,043 per month.

 

Processing fee waivers: Canara Bank is offering a 100 per cent waiver on fees under its festival scheme till 30 September 2025. IDBI Bank has also scrapped its usual Rs 2,500 fee until month-end.

 

Private banks: ICICI Bank (9.10 per cent onwards) and HDFC Bank (9.20 per cent onwards) remain costlier, with processing charges of up to 2 per cent of the loan amount.

 

Public sector lenders such as Union Bank, Punjab National Bank and State Bank of India continue to dominate the affordable segment, with rates between 7.80 per cent and 9.90 per cent.

 

NEW CAR LOAN-RATES AND CHARGES
Name of Lender	Interest rate (%) p.a.	EMI (Rs)  Loan amount-5 lakh  Tenure-5 years	Processing fee  (% of loan amount)
Union Bank of India	7.80-9.70	10,090 - 10,550	Up to Rs 1,000
Punjab National Bank	7.85-9.70	10,102 - 10,550	Up to 0.25% (Rs. 1,000 - Rs. 1,500)
Bank of Baroda	8.15-11.60	10,174 - 11,021	Up to Rs. 2,000
Canara Bank	7.70-11.70	10,067 - 11,047	0.25% (Rs 1,000 - Rs. 5,000)  (100% waiver on processing fee under Retail Loan Festival from 01.07.2025 to 30.09.2025)
Bank of India	7.85-12.15	10,102 - 11,160	Up to 0.25% (Rs. 2,500 - Rs. 10,000)
UCO Bank	7.60-10.25	10,043 - 10,685	0.50% (Rs 5,000)
State Bank of India	8.85-9.90	10,343 - 10,599	Rs 750 - Rs 1,500
IDBI Bank	8.30-9.15	10,210 - 10,416	Rs 2,500  (Zero processing fee till 30.09.2025)
Bank of Maharashtra*	7.70-12.00	10,067 - 11,122	Up to 0.25% of the loan amount (max. up to Rs. 15,000)

Indian Overseas Bank 7.80-12.00 10,090 - 11,122 0.50% (Rs 500 - Rs 5,000) ICICI Bank 9.10 onwards 10,403 onwards Up to 2% HDFC Bank 9.20 onwards 10,428 onwards Up to 1% (Rs. 3,500 - Rs. 9,000) Karnataka Bank 8.95-11.64 10,367 - 11,031 Up to 0.60% (Rs. 2,500 - Rs. 11,000) Federal Bank 10.00 onwards 10,624 onwards Rs. 2,000 - Rs. 4,500 Punjab and Sind Bank** 7.75-14.25 10,078 - 11,699 0.25% (Rs. 1,000 - Rs. 15,000) Indian Bank 7.75-9.85 10,078 - 10,587 Rs. 1,000 IDFC FIRST Bank 9.99 onwards 10,621 onwards Up to Rs. 10,000 Central Bank of India 7.85-9.45 10,102 - 10,489 0.50% of loan amount (Rs. 2,000 - Rs. 20,000) *0.25% interest rate concession for existing home loan borrowers and other existing customers having atleast 6 months of relationship with the bank.  **Concession of up to 50% on processing fee for PSB Apna Vahan Sugam. Rates and charges as of 3rd September 2025. Source: Paisabazaar.com  

Impact of GST cut on car affordability

 

The GST reduction is particularly significant for small cars (below 1200cc engine capacity and 4000mm length), which will now attract 18 per cent GST instead of 28 per cent. This 10-percentage-point drop could translate into savings of several tens of thousands of rupees on a new car.

 

For instance, a hatchback priced at Rs 7 lakh (excluding showroom price) earlier carried nearly Rs 2 lakh in tax. With the new 18 per cent rate, the tax component falls sharply to around Rs 1.3 lakh, trimming the upfront cost. Lower car prices also mean the absolute loan requirement reduces, which in turn lowers EMIs and overall interest outgo.

 

What it means for buyers

For prospective buyers, the timing is favourable:

 

-Lower GST = reduced on-road prices

 

-Festive season loan offers = cheaper credit

 

-Public banks offer best rates, while private banks have higher charges

 

If you are planning to purchase a small car this festive season, combining the GST cut with low-interest loans can deliver significant savings. Borrowers should, however, compare processing fees and check for temporary festive waivers before signing up.