Buying a car is a big decision, and most people take a loan to make it affordable. But before you finalize a loan, you must understand car loan interest rate types—fixed and variable. This choice affects your monthly payments and overall loan cost. Let’s break it down into six crucial points in simple terms.

1. What is a Fixed Car Loan Interest Rate?

A fixed car loan interest rate remains the same for the entire loan tenure. This means your monthly EMI (Equated Monthly Installment) stays unchanged. Many people prefer this type because it offers stability—you always know how much you need to pay.

For example, if you take a car loan at a fixed rate of 9% for 5 years, your EMI will not change even if interest rates in the market go up or down.

2. What is a Variable Car Loan Interest Rate?

A variable car loan interest rate (also called a floating rate) changes based on market conditions. Banks and financial institutions adjust these rates according to economic factors.

For instance, if the Reserve Bank of India (RBI) lowers interest rates, your EMI might reduce, saving you money. But if rates go up, your EMI increases, making it unpredictable.