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Penetration of car financing inches up as loans gets cheaper

The Times of India logo The Times of India 26-10-2020 Nandini Sen Gupta
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Chennai: Five year low interest rates on auto loans has pushed India further on the vehicle financing penetration map to 77% from 74% in 2016. US leads with more than 80% penetration.

A combination of the slowdown and the pandemic alongside cheaper credit has helped increase financing penetration as more people prefer to keep cash in hand and get their vehicles financed.

In the last 18-24 months, financing penetration has gone up by 2%-3%. US passenger vehicle financing penetration has remained unchanged for nearly 4 years- 86% in 2016 to 85.5% in Q2 of 2020, data from Statista showed. “The penetration of vehicle financing has been at elevated level over the past one-and-a-half years,” said Ravi Narayanan head: secured assets, ICICI Bank. Added Ashish Modani, VP ICRA, “Financing has seen a 2%-3% increase in passenger vehicles in the last 2 years or so.” Vehicle financiers say the current interest rates, which are down at least 125 bps (100 bps =1%) year-on-year, are the lowest in a long time which has made financing attractive. "In India finance has always played a very important role in the car industry and finance penetration has always been around 75% . Finance penetration moves up and down in the range of 2 to 3% . Interest rates are one of the important factors that influences finance penetration. The current interest rates are the lowest in at least five years,” said Vyomesh Kapasi, MD, Kotak Mahindra Prime:.

Car dealers say that a combination of the slowdown and cheaper finance for first time buyers actually boosted finance penetration. “India has a higher proportion of first time buyers in contrast to other countries. And the organised used car market is still developing in India which lures customers to opt for new cars. And long-term operating lease options are preferred in international markets but in India customers prefer to own the vehicle,” said ICICI's Narayanan:.


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