Unlock capital with loans against cars in 2025. Flexible, fast, and affordable funding for SMEs, gig workers, and self-employed entrepreneurs.
Vehicle Loan 2025
A deep dive into how loans against vehicles quietly revolutionizing SME and gig economy financing are.
In 2025, as India's entrepreneurial economy continues to expand, a quiet but powerful trend is reshaping how self-employed individuals secure business capital: loan against car financing. With banks tightening scrutiny on unsecured loans, gig workers, freelancers, and small business owners are struggling to produce conventional income proofs. A situation has made loans against vehicles an instrument of choice for financing as an agile, accessible, and cost-effective funding solution.
What Is a Loan Against Car?
A loan against a car - a vehicle equity loan- is a loan extended by financial institutions that requires pledging your existing vehicle as collateral. One can get a loan against their existing car which is owned by them, provided 12 EMIs of the car have been successfully paid. Unlike car loans, which finance the purchase of a new vehicle, this option unlocks the value of a car you already own.
Now let's see what makes it truly lucrative for the self-employed segment in 2025, and why consumer finance watchers should be paying close attention.
1. Easier Eligibility
Securing a traditional unsecured loan poses a challenge for many self-employed individuals. Freelancers, small traders, and startup founders are often challenged to provide the frequently demanded salary slips, ITRs for multiple years, and consistent credit histories as qualifying documentation to financial institutions, which can render them unqualified for secured loans. In contrast, a loan against a car is secured against a tangible asset. According to Mahindra Finance, a loan against a car is not solely based on the applicant's income documents or credit score; instead, it is largely determined by the vehicle's market value and condition. This asset-based underwriting opens the door for those previously excluded from the credit system.
Media Insight: As the gig economy grows and India's informal sector expands (over 80% of the workforce is informally employed), this financing model speaks directly to an underserved market.
2. High Loan-to-Value Ratios (Up to 200%)
Worried your vehicle won't yield a meaningful loan amount? Think again. Many Financial institutions today offer up to 200% of the car's current market value, depending on its condition and brand.
For example, if you own a ₹10 lakh car, you could unlock as much as ₹19-20 lakh in financing. Suppose you still have an outstanding loan of ₹4 lakh on that vehicle-this amount would first be cleared with your existing financier, and you could still walk away with ₹15-16 lakh in hand, without selling or downgrading your car.
Industry Context: According to SIAM, India had over 30 million privately owned passenger vehicles by 2023. That's a massive pool of untapped capital sitting in driveways and garages.
3. Quick Disbursal: Capital Within 24-48 Hours
In a fast-paced business environment, time is money. Timelines for disbursement of loans against cars are impressively short - often within 48 - 72 hours from application, provided the documentation is complete. As reported by Republic World, NBFCs have emerged as the preferred choice due to their faster turnaround and less stringent documentation norms.
Use Case: A self-employed consultant acquires a large project that requires upfront procurement. Rather than delay or miss the opportunity, they could unlock capital from their car to fulfil the deal on time.
4. Flexible Repayment Aligned with Cash Flow
Personal and business loans come with predefined, rigid EMIs depending on the loan duration. It is not the case when it comes to vehicle loan repayment plans. Vehicle loan repayment plans can often be customized to align with business cycles. Some NBFCs and fintech lenders allow:
- Seasonal EMIs for agriculture-related borrowers
- Step-up or step-down EMIs for traders and gig workers
- Balloon payments for professionals with irregular revenue spikes
This flexibility makes repayment less stressful during lean periods-an essential feature for anyone with fluctuating monthly income.
5. Tax Benefits When Used for Business
Here's a tax-saving angle that many self-employed professionals overlook: interest paid on loans used for business purposes is tax-deductible under the Income Tax Act.
If a vehicle loan is used to fund business expansion, equipment purchase, or working capital, the interest can be claimed as a business expense, lowering taxable income and thereby reducing the effective cost of borrowing.
Pro Tip: Maintain a separate account trail for the loan to demonstrate business usage to the IT department clearly.
6. Lower Interest Rates Than Personal Loans
While personal loans for self-employed individuals can carry steep rates (often 14-24%), a loan against a car is generally much cheaper. According to Republic World, interest rates on vehicle-backed loans typically range between 10% to 15%, thanks to the reduced risk for lenders.
In the long term, this interest gap translates into tens of thousands in savings.
Loan Type Interest Rate (Avg.) Secured
Personal Loan 14%-24%
Loan Against Car 10%-15%
7. Opportunity to Build or Repair Credit
For self-employed borrowers with thin or damaged credit files, repaying a vehicle-backed loan on time can be a smart way to build credit history.
As per RBI norms, NBFCs and banks must report loan repayment data to credit bureaus. A positive payment record not only boosts your CIBIL score but also improves your future eligibility for unsecured business loans, credit cards, or mortgage loans.
8. Safer Than Selling the Car or Borrowing From Informal Lenders
In a liquidity crunch, many self-employed individuals either sell their vehicle - impacting their mobility and business operations - or turn to unregulated moneylenders, exposing themselves to predatory interest rates and coercive recovery.
Taking a loan against your car offers a perfect middle ground. You retain your mobility, create value for your asset, while gaining the convenience of repaying the loan on terms that align with your business earnings.
2025 Outlook: A Growing Segment With Strong Tailwinds
India's loan against vehicle market is poised for accelerated growth. Fintech-NBFC partnerships are making applications 100% digital, while used car valuation tools ensure transparent pricing. For lenders, it's a low-risk, high-demand product. For borrowers, it's a lifeline.
Key Drivers for Growth in 2025:
- Expansion of self-employment across tech, services, and content creation
- Declining cost of digital KYC and used car valuation
- Growing acceptance of alternative credit scoring models
- The growth of car ownership in Tier 2 and Tier 3 cities
Final Thoughts: A Strategic Lever for Growth
A loan against a vehicle could be a strategic move for India's self-employed class. Whether you're a digital freelancer, a small manufacturer, a delivery fleet operator, or a solopreneur, this type of secured funding provides liquidity, agility, and control.
It's time the consumer finance world paid more attention to this evolving product category-not as a last-resort loan, but as a first-choice capital strategy for the modern entrepreneur.
Mr. Sunil Talreja, Business Head - Auto Loans & Car Par Loan at FINQY
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