The GST Council recently announced a reduction in GST on small passenger vehicles (≤ 1,200 cc) from 28% to 18%, effective 22 September 2025. This significant cut is expected to lower the on-road price of eligible cars, prompting a wave of loan cancellations and deferments as customers wait to benefit from lower costs and reduced financing requirements.
Impact on Car Loans
Loan Cancellations: Customers who had already secured car loans are now canceling or postponing their loans.
Reduced Loan Amounts: With lower vehicle prices post-GST cut, borrowers will need smaller loans to finance the purchase.
EMI Reduction: Lower principal amounts and interest costs may lead to smaller EMIs for those waiting to apply after 22 September.
Why Customers Are Waiting
Cost Savings: Cars priced below ₹1,200 cc will become more affordable, directly reducing loan requirements.
Better Loan Terms: Borrowers can negotiate for smaller loans and potentially better interest rates.
Financial Planning: Waiting allows individuals to plan budgets more efficiently and reduce the total interest outgo over the loan tenure.
Bank and NBFC Perspective
Lenders may see temporary dips in loan disbursements for small cars until the GST cut comes into effect.
Banks and NBFCs may adjust interest rates or processing fees to attract borrowers after 22 September.
Dealers and financiers are preparing for a surge in applications post-GST cut.
Things Borrowers Should Consider
Loan Reapplication Process: Canceling an approved loan may require re-submission and processing fees for a new application.
Interest Rate Changes: Ensure that the rate offered post-GST cut is favorable; market rates may vary.
Down Payment Planning: With lower vehicle prices, borrowers can reduce down payment or upfront cash outflow.
Timing: Apply for the loan as close as possible to the GST cut effective date to maximize benefits.
Conclusion
The GST rate cut on small cars is a win for consumers, but it also creates short-term disruptions in the auto loan segment. Borrowers who wait until 22 September can benefit from lower car prices, smaller loans, and reduced EMIs, while lenders prepare for increased loan applications and updated pricing structures.
Frequently Asked Questions (FAQ)
1. What GST change is coming for small cars?
The GST on small passenger vehicles (≤ 1,200 cc) is being reduced from 28% to 18%, effective 22 September 2025.
2. Why are customers canceling approved car loans?
Borrowers are postponing loans to benefit from lower car prices, which reduces the loan amount and EMIs.
3. Will this affect all car loans?
Primarily loans for small cars ≤ 1,200 cc will be affected. Loans for larger vehicles remain unchanged.
4. How can borrowers benefit from this GST cut?
Apply for loans after the GST cut effective date.
Lower vehicle price means smaller loans and reduced EMIs.
Better financial planning and reduced interest outgo.
5. Are there any downsides to canceling an approved loan?
Some banks may charge processing fees for reapplication.
Interest rates and terms may differ if the loan is reapplied post-GST cut.
Published on : 15th September
Published by : SMITA
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