Before signing vehicle finance in India: how should buyers compare flat rate, reducing rate, APR and KFS terms?

A vehicle-loan quote can look cheaper than it is when the headline rate is presented as a flat rate rather than a reducing-balance rate. A flat rate generally calculates interest on the original principal for the full tenure, while a reducing rate calculates interest on the outstanding balance as principal is repaid. The percentages are not directly comparable.

Start with the KFS

For new retail term loans sanctioned on or after 1 October 2024 by RBI-regulated lenders, the Key Facts Statement is meant to support comparison before the contract is signed. It should be in a standard format, explained in a language understood by the borrower, acknowledged by the borrower, and include an APR computation sheet plus the amortisation schedule. Fees or charges omitted from the KFS cannot later be imposed without explicit consent.

What to compare in writing

• APR: use it as the broader annual cost measure because it includes interest and applicable charges associated with the credit facility.
• EMI and total repayment: compare the monthly instalment, total interest and total rupee outgo over the same amount and tenure.
• Fees: check processing, documentation, insurance or other third-party charges separately and ask which are refundable.
• Exit terms: read prepayment, foreclosure, part-payment and cancellation conditions before accepting the loan.

Ask for competing offers using the same principal, tenure and down-payment assumptions. A lower flat-rate headline can still produce a higher effective cost once repayment structure and fees are included.

Decision dimensions: compare APR and total rupee repayment; then compare prepayment/cancellation flexibility and all disclosed upfront or third-party fees.