is it a good idea to put essential oil in cabin air filter?

I wouldn't do this. Essential oils can be very powerful, a few drops could easily overpower a small space, and you can't stop it once you put it in. If you are driving and the smell gets too much it's a problem.

You are better off putting the essential oil on a cloth and putting it in the car, with a bag to put it in if it's too strong.

I wouldn't recommend this at all. A work colleague just bought a second hand car and after a week or so he noticed an odd smell coming up from the passenger foot well. He had the car valeted and the smell went away but came back a couple days later. So he added some fragranced oil to his cabin air filter and now the smell is masked by this insanely sweet rich smell that made him feel sick. He says he only added a few drops but to be honest the car smells like it was marinated in perfume. He's taking the car in to his mechanics next week to get it sorted. An avoidable added expense. Rather than messing with the cabin air filter, maybe try vent stick deodorisers.

No it won't be a good idea to put essential oil. While we all want our cars to smell fresh this idea will lead to certain problems.

• Essential oils need little heat to vaporise and mix with air, which will be only in times of winter. In summers with colder(AC) air they won't be able to disperse that good and will introduce uneven fragrance.
• Oil does not evaporate completely, there will be a residue on the filter which will attract dust and helps in clogging the filter sooner than it should.
• As oil will remain there as residue it will clog the pores and then AC system will have to do more work to expel air in cabin which will in turn increases pressure on you engine and decrease mileage or fuel efficiency.
• After the fragrance has worn off, the burnt or smoked oil smell will create unpleasant environment in car unless you keep refilling or changing filter frequently.
• Bacteria will start forming on the oil surface of the filter as cars stand in sun/shade and have humidity inside them which makes them amazing habitat for bacteria and other microorganisms.

Things you can try:

• keep gel/liquid/solid based fresheners that you can turn on/off easily as per your use.
• sprinkle little perfume/deodorant everytime you need car for longer runs.
• Use a can and soak a folded cloth with essential oil and take that with you in car.