TThe pre-owned car market in India is 1.2 times of the new car business. That is, more used cars are sold than new cars every year.
Despite this, only 36,500 pre-owned cars are financed monthly as compared to 190,000 new vehicles, according to Indian Blue Book – a vehicle pricing website by Mahindra First Choice Wheels.
The reason: While a new car only involves credit risk on the borrower, lending for a used car is more complicated. “A financier has to come up with its value of the car based on its age, model and kilometres clocked, and how the four-wheeler was used,” said Namit Jain, business head – used car finance, CarDekho. If a car is used as a taxi and clocked higher kilometres, it will be priced lower than a similar car used personally.
Apart from this, when a lender is giving loan for a pre-owned car, it is funding a vehicle that is in the name of the previous owner. It can take anywhere between 45 days and 180 days for the car’s registration certificate is endorsed in the name of the new buyer by a regional transport office. It can be even trickier if the seller has an ongoing loan on the car. Used car loans
are, therefore, expensive by 3-7 per cent compared to new car loans.
A new car loan from State Bank of India is between 9.2 per cent and 12.35 per cent. The interest rates on pre-owned cars are 12.9 per cent. Axis Bank gives new car loans
starting at 9.25 per cent and charges an interest of 15-17 per cent for used vehicles. Most private lenders charge over 14 per cent interest rate on new vehicles.
The interest rates on a personal loan range from 11 per cent to 24 per cent. Most lenders finance up to 70-80 per cent of the value of the vehicle that they put on the car. So, you could be paying Rs 400,000. But if the lender thinks the car value is Rs 300,000, the loan disbursed will be 70-90 per cent of this value. It means that buyers will get around Rs 240,000 if the loan-to-value ratio is 80 per cent. In a personal loan, it’s the buyer’s choice to decide on the loan amount.
Most lenders say that they offer loans up to five years. But the age and condition of the used vehicle determine the tenure and, usually, the loans are given out for three years. Most lenders allow a five-year tenure for personal loans. For a home loan top-up, it can be even higher.