AUTO LOANS ROAR BACK TO LIFE: GST RATE CUT SPARKS SURGE IN DEMAND

The headline “AUTO LOANS ROAR BACK TO LIFE: GST RATE CUT SPARKS SURGE IN DEMAND” is real and accurate, reflecting actual events in India in late 2025. The surge in demand for auto loans occurred as a direct result of significant Goods and Services Tax (GST) rate cuts on specific types of vehicles, which went into effect on September 22, 2025.

The Indian auto loan market is revving up, driven by the GST rate cut on select vehicles from 28% to 18%! This move has boosted passenger vehicle sales and consumer sentiment, with banks like SBI, Axis, IndusInd, and Shriram Finance reporting strong growth, especially post-September 22.

Also Read:

Kotak Mahindra Bank – SME & Wholesale Lending Solutions (₹7–200 Cr)

Details of the GST Rate Cuts and Impact:

Reduced Vehicle Prices: The 56th GST Council meeting approved a substantial reduction in the tax rate for small cars (petrol and diesel, under specific engine capacity and length limits) from the highest slab of 28% (plus cess) to a flat 18%, with the compensation cess eliminated. This made small cars and certain two-wheelers significantly more affordable for consumers.

Increased Affordability: The price reductions, combined with competitive interest rates on auto loans offered by banks, resulted in major savings for car buyers, enhancing overall affordability.

Surge in Demand: The cuts spurred a strong revival in consumer sentiment and retail demand, especially during the festive season that began around the same time (Navratri). Automakers and financial institutions reported a substantial increase in bookings and loan applications.

Consumer Behavior Shift: There was an initial trend of customers cancelling already approved car loans to re-apply after September 22 to benefit from the lower prices and reduced loan amounts.

Loan Growth: The banking sector saw strong growth momentum in vehicle loans following the changes, with increased disbursements and a rise in new customers seeking financing.

Also Read:

SIDBI – Powering India’s MSME Growth: Funding, Schemes & Business Support

Key Trends:

Car Loans: Rising demand, driven by GST rate cut and festive season

Two-Wheeler Loans: Also showing growth, as consumers opt for affordable options

Commercial Vehicle Loans: Remain subdued, due to weak demand

Banks’ Performance: SBI, Axis, IndusInd, and Shriram Finance report strong growth

Why the Surge?

GST rate cut on select vehicles from 28% to 18%

Festive season boosting consumer sentiment

Rural recovery contributing to growth

What’s Next?

The festive season, GST reforms, and rural recovery are expected to sustain momentum in the auto loan market. With banks offering attractive deals and discounts, consumers are likely to continue taking advantage of the favorable market conditions.