Car Loan Trends Over the Last Decade

‘Jams’ nowadays are as much part of an office-goer’s lexicon as much as it is when it comes to kids’ breakfast. So much so that, even car loans seem to be moving faster than traffic on Indian roads these days.

So what is causing this exponential rise in loans for smoke-spitting vehicles? Just how easy is it to get that car you’ve been admiring every morning (a Jaguar XF maybe?) ?

Mapping car loan trends

The Automobile industry is one of the fastest growing industries in India. Passenger vehicle production (including 2 wheelers) has almost doubled. The industry produced 1.5 million units in 2005, whereas 3.2 million units were produced during the Financial Year of 2014. Expanding economy, increasing and multiple incomes, growing cities have all added to this increase in demand.

What’s the primary means of financing these vehicle purchases? No points for guessing – around 75% of new car purchases are financed through loans.  Finance is just as readily available for used cars as well.

While production shows a positive trend, credit offtake also mimics the trend. Car loans have grown during the past decade due to many factors:

• Better availability of credit post liberalization with private banks and non banking financial institutions offering credit
• Better access to finance beyond major cities and towns
• Use of technology and data by financers to predict trends and thereby modify loan offers
• Tie-ups between manufacturers and financers
• Simplification of loan procedures
• Transparent system for deciding rate of interest
• Easily available credit scores of the applicants from CIBIL

Innovative Practices

Gone are the days when applying for a loan was a harrowing process. Banks and financial institutions have made processes extremely simple and loan disbursements extremely fast.

30-Minute loans: HDFC Bank, which has a huge portfolio of retail loans, has gone a step ahead and is using biometric technology to disburse car loans in about just 30 minutes. The biometric device, available with many car dealers, links a customer’s fingerprint to his or her Aadhaar number and obtains necessary details linked to that number. After giving additional details, like job and income, and payment of margin money, the customer can drive his new car out in no time.  This is HDFC Bank’s step towards becoming a ‘Digital Bank’.

Captive financing: This is another idea that many companies are using. The automobile company comes up with a financing company of its own, like Toyota Financial Services, Daimler Financial Services (for BMWs), TVS Services etc. As the loan is in-house, better terms are offered with benefits for customers. For example, Daimler Financial Services offers a lower rate of interest for its older models.

Balloon repayment: This option is offered by many banks and financial institutions for easier repayment of loans. Under this, lower EMIs are charged during the majority of a tenure. At the end of this period, customers can choose to pay off the remaining amount, sell the car or go for refinancing.  Kotak Car Finance allows you to pay off up to 75% during the tenure, keeping your loan repayments to a minimum. And the last 25% is to be paid off in the last EMI. This proves useful to those who like to keep changing their cars frequently. It allows you to sell the car at a favorable cost.

Other options like online application, higher loan value (up to 95%- 100% of the showroom price), other varied repayment options like Step Up Payments or Advance EMI, bank-associated websites to make the right car choices, are some of the other innovative practices that sweeten car loan options.

While you focus on your Zen in your new car, we’re hoping somebody comes up with the brilliant idea of selling breakfast in the worst traffic hit areas.

Young entrepreneurs, are you listening? We’re quite okay with just bread-butter-jam.

YOU MAY ALSO WANT TO: Check your car loan EMI options using our Car Loan EMI Calculator.