Saturday, June 20, 2009

Used-car loans get cheaper as biz gets organised

NEW DELHI: As used-car business gets more organised, loans have become cheaper. Interest rates have fallen by around 2% to about 15.5% as the

asset quality (vehicles sold) has improved with all carmakers joining the used-car business.

According to HDFC Bank head for auto finance Rajan Pental,“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.” Utilising dealer network to sell second-hand cars by carmakers has also brought in transparency in car deals with certified, better quality vehicles that carry rating from manufacturers.

For a customer buying a second hand car, the finance payout on a Rs 4 lakh car has gone down by around Rs 2,000 per year and it has also reduced the gap between the interest rate on loans for new cars and used cars by 4-5%. Customer interest for used cars has increased in the past year because of handsome bargains on newer models and uncertain market conditions.

In the past few years, almost every carmaker — Maruti’s True Value, Hyundai Advantage, Honda’a Terrace, GM’s Chevrolet OK, Mahindra’s First Choice, Tata Motors’ and Ford Motor — have started their certified pre-owned car programmes. This has increased the share of organised business to around 20% from 4-5% in the past three years.

Around a million used-cars are traded every year and a bulk of these deals is dominated by neighbourhood dealers, roadside garage mechanics and direct selling by owners. Used-cars sold by car companies go through a 110-point checklist, bringing higher trust in the business.

“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,” said a senior executive of ICICI Bank, who did not wish to be named.

Maruti Suzuki, the largest player in the used-car business that trades over a lakh vehicles every year, utilises its exclusive PSU Banks partnerships with SBI, PNB and others to offer competitive interest rate of 15% and lower to its True Value customers. “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,” said a senior Maruti executive who works for the True Value division.

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