Average passenger vehicle loans in India have surged 49% to ₹8.2 lakh, with repayment tenures extending to 62 months. As vehicle prices rise, borrowers are opting for longer plans, though this exposes them to higher interest costs and risks like negative equity.
The cost of owning a car in India is shifting the financial habits of consumers, as revealed by the latest data from the TransUnion CIBIL report titled 'Shifting Gears 2026'. The average loan amount for a passenger vehicle has climbed to ₹8.2 lakh in the first half of 2026, marking a 49% increase compared to 2019 levels. This sharp rise is accompanied by a change in repayment patterns, with the average loan tenure stretching to 62 months—an increase of five months over the last few years.
This trend is primarily driven by the premiumization of the automotive sector. As consumers increasingly prefer higher-value SUVs and feature-rich models, vehicle prices have moved upward. To keep monthly payments manageable in the face of these rising prices, many borrowers are choosing to extend their repayment schedules.
While longer tenures may lower monthly installments, they come with significant implications. Borrowers end up paying much higher total interest over the life of the loan. Furthermore, there is a risk of negative equity, a situation where the outstanding loan balance remains higher than the actual market value of the vehicle, which depreciates over time. This risk is particularly relevant if the borrower decides to sell or trade in the vehicle early.
Non-Banking Financial Companies (NBFCs) remain the dominant force in this credit space. They currently hold 73% of the two-wheeler loan market and 37% of the passenger vehicle loan market, largely due to their deep penetration into rural and semi-urban areas. In fact, more than half of all high-value car loans now originate from outside major metro cities, highlighting the growing demand for credit in smaller towns.
There is also a notable change in the borrower profile. The share of first-time credit seekers in the two-wheeler segment has declined, while experienced borrowers—those with at least two years of credit history—now account for 43% of new originations. This suggests that the vehicle financing ecosystem is increasingly serving established credit users who view these loans as a gateway to other financial products like personal loans or credit cards.
Adding to the financial pressure, the Reserve Bank of India (RBI) recently increased the repo rate to 5.50% in October 2026. This move is likely to impact interest rates on variable-rate vehicle loans, potentially leading to higher equated monthly installments (EMIs) for many borrowers. For investors, the key monitorables will be how these longer loan tenures affect the asset quality of NBFCs and whether rising interest rates lead to a slowdown in loan growth or increased repayment stress among borrowers.