Banks are witnessing a surge in requests to cancel approved car loans as consumers prepare for the upcoming GST rate reduction on passenger vehicles. Effective 22 September 2025, the GST on cars up to 1,200 cc will fall from 28% to 18%, leading to price reductions of ₹40,000 to ₹1.55 lakh depending on the model.
This has prompted buyers to cancel existing loans and reapply post-GST cut to benefit from lower vehicle prices and smaller loan amounts.
Impact on Borrowers
Lower Vehicle Prices: GST reduction directly reduces the on-road cost of small cars, enabling borrowers to finance a smaller principal.
Reduced EMIs: Smaller loans translate to lower monthly installments, easing financial stress.
Financial Planning: Customers can better plan down payments and overall budget due to lower total loan requirements.
Loan Reapplication Strategy: Many are postponing purchase and reapplying for loans after 22 September to maximize benefits.
Implications for Banks
Temporary Dip in Loan Disbursements: Banks may see a short-term slowdown in approvals for small car loans as cancellations rise.
Processing Adjustments: Banks must manage cancellation requests, refunds of processing fees, and reapplication processes.
Post-GST Surge: Loan applications are expected to spike immediately after the GST cut, requiring banks to prepare for increased workflow.
Consumer Guidance
Confirm Loan Cancellation Policies: Understand fees or charges applicable for canceling existing approvals.
Compare Loan Offers Post-GST: Interest rates, tenure, and processing fees may vary after cancellation and reapplication.
Time the Loan Application: Apply as close to the GST cut effective date to secure the lowest possible loan amount.
Check Total Cost of Ownership: Include insurance, registration, and other charges along with GST benefits when planning purchase.
Conclusion
The GST reduction on small cars is set to significantly benefit consumers, but it also temporarily disrupts car loan disbursements. By strategically canceling and reapplying for loans, borrowers can capitalize on lower prices, reduced loan amounts, and smaller EMIs. Banks need to prepare for a surge in post-GST applications, while consumers must carefully time their applications to maximize financial advantage.
Frequently Asked Questions (FAQ)
1. When will the GST cut on small cars take effect?
The GST reduction on cars up to 1,200 cc will be effective from 22 September 2025.
2. How much will prices decrease after the GST cut?
Depending on the car model, prices may drop between ₹40,000 and ₹1.55 lakh.
3. Why are customers canceling approved car loans?
Buyers want to reapply after the GST cut to benefit from lower car prices, smaller loan amounts, and reduced EMIs.
4. What should borrowers keep in mind when canceling a loan?
Check for processing fees, cancellation charges, and reapplication procedures with the lender.
5. How can consumers maximize savings post-GST?
Apply for loans as close as possible to 22 September
Recalculate EMIs and total loan amount
Factor in insurance, registration, and other costs along with GST benefits
Published on : 15th September
Published by : SMITA
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