Friday, June 26, 2009

Lower interest rates offered on used-cars loans

he interest rates on used cars have lowered to about 15.5%, as this segment of business turns more organized with increased participation of carmakers.

Rajan Pental, head auto finance, HDFC bank, "Higher sales through these channels have lowered the risk profile of customers and improved their payback capability, enabling us to offer loans at lower rate without compromising our business interest."

The certified pre-owned car programmes with the ownership certifications and quality ratings of the vehicles have enabled more transparency in car-resell deals. In recent years, many reputed carmakers have entered this business, resulting in increase of market share to around 20 percent from the 4-5 percent during last three years. The names include, Hyundai Advantage, Maruti's True Value, Honda'a Terrace, GM's Chevrolet OK, Tata Motors, Ford Motor and Mahindra's First Choice.

Maruti Suzuki, in public-private partnership with banking majors like SBI and PNB offersused car loans at 15 percent or lower interest rates to its value customers. Quoting a senior Maruti official, true value division, "With total transparency and complete quality checks in second-hand car sales, we have been able to increase bankers' confidence resulting in lower interest rates. The consistent double-digit growth in organised used-car business has restored confidence of banks and some more cuts in rates are expected in future."

In a used car deal, the interest payout on a loan of Rs 4 lakh lowers by around Rs 2,000 per year. The interest rate gap between new and used car loans is as much as 4-5 percent. Considering the financial aspects and market dynamics, the interest in used car loans has considerably increased.

Commenting on the trend, a senior executive of ICICI Bank, said, "There has been a significant shift towards getting reliable cars with customers willing to spend more. With the carmakers stepping in to build their brand loyalty and setting standards in used-car deals, the risk on these assets has reduced, in-turn allowing us to offer cheaper interest rates."

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