India’s first-time car buyers are moving towards more expensive vehicles, with young customers in their mid-20s and early 30s increasingly spending ₹5 lakh to ₹8 lakh on their first car, compared with ₹1.5 lakh to ₹2.5 lakh a decade ago, according to Kotak Mahindra Prime Ltd (Kotak Prime).
The shift reflects changing consumer aspirations, improved access to vehicle financing and a wider choice of feature-rich models, including compact sport utility vehicles (SUVs). Young buyers are increasingly prioritising safety, comfort, technology and resale value over simply purchasing the cheapest available car, the vehicle financing company said.
The change is reshaping the first-car market, with monthly equated monthly instalments (EMIs) emerging as a key consideration in purchase decisions.
“The first-car category has evolved, and this change is reshaping the wider auto market,” said Kotak Mahindra Prime MD and CEO, Suraj Rajappan.
Younger customers are entering the market earlier and choosing vehicles based on the value they can obtain within a comfortable EMI, rather than focusing exclusively on the initial purchase price, he said.
First-car budgets move upmarket
The increase in first-car spending points to a change in how young Indians approach vehicle ownership.
A decade ago, first-time buyers typically opted for entry-level cars costing ₹1.5 lakh to ₹2.5 lakh. Today, budgets of ₹5 lakh to ₹8 lakh are becoming more common, with some buyers willing to spend more on better-equipped variants and vehicles in higher segments, according to Kotak Prime.
The shift is being supported by a broader range of models offering features that were previously associated with more expensive vehicles.
Safety equipment, infotainment systems, connectivity and convenience features have become important considerations even for buyers entering the market for the first time.
Young customers also expect their first car to meet multiple needs, from daily office commutes and family travel to weekend outings and long-distance road trips. This is encouraging some buyers to consider larger and better-equipped vehicles instead of basic entry-level models.
“The first-car journey has moved up the value curve,” Rajappan said, adding that customers increasingly compare space, safety, technology, resale value and EMI affordability before making a purchase.
Used cars offer a route to higher segments
The expansion of organised pre-owned vehicle platforms is another factor influencing first-car choices.
Certified inspections, warranties, digital discovery and more transparent pricing have improved buyer confidence in the used-car market, according to Kotak Prime.
A well-maintained used SUV or mid-size car can sometimes be financed at a monthly EMI comparable to that of an entry-level new car. This allows buyers to consider a higher vehicle segment without a proportionate increase in monthly repayments.
For younger customers seeking more space, comfort and features within a defined budget, pre-owned vehicles are therefore becoming an alternative to buying a new entry-level model.
The growing acceptance of used cars is also broadening the range of vehicles available to first-time buyers, allowing them to compare new and pre-owned options on the basis of total cost, features and expected resale value.
Financing shapes buying decisions
Vehicle financing has become central to the changing first-car market.
Kotak Prime has observed an increase in first-car loan ticket sizes and greater acceptance of loan tenures of five to seven years among younger borrowers. The company also reports strong repayment discipline in this segment.
Longer tenures can reduce monthly repayments for a given loan amount, making higher-priced vehicles appear more affordable. However, they can also increase the total interest paid over the life of a loan.
For many first-time buyers, the EMI has become the primary filter for determining how much they can spend on a vehicle. If repayments fit within their monthly budgets, some are willing to move up one or two vehicle segments in pursuit of better features and longer-term usability.
The trend highlights the role of financing in influencing not only whether consumers buy cars but also which models and price segments they choose.
Changing aspirations reshape the market
The move towards more expensive first cars reflects broader changes in India’s consumer economy.
Young professionals are entering the workforce earlier, dual-income households are more common in some buyer segments, and urban mobility requirements are evolving. Expectations around personal comfort, safety and travel have also increased.
For manufacturers, the trend creates opportunities to attract younger customers with feature-rich entry-level models, compact SUVs and better-equipped variants.
For lenders, rising loan values among first-time buyers offer opportunities to expand vehicle financing, while making responsible assessment of repayment capacity increasingly important.
The change suggests that India’s first-car market is no longer defined solely by affordability at the lowest price point. Instead, younger buyers are increasingly balancing aspiration with monthly repayment capacity, seeking vehicles that offer greater utility and features from the beginning of their ownership journey.