Buying a brand new car is no longer a priority for many. All they want is a reliable car that will take them and their family to wherever they want. This change in the thought process of not always buying a new car is now gaining momentum in the used car segment.
Customers are lining up to buy used cars all throughout the year. This is a marked change from a few years ago when only commercial customers used to come and that too ahead of busy seasons. Today, urban families are getting smarter about cars and are looking at total cost of ownership when opting to buy four-wheelers. These factors have given the used car loan industry a much-required momentum, as a result of which the market is evolving faster and becoming aligned with customer needs and weeding out non-serious players. The billion-dollar second-hand car industry is growing by leaps and bounds, but the story would not be complete without easy financing. We take a look at 4 key trends that are defining the industry.
Higher finance percentage of on-road car price:
Second-hand cars earlier carried a stigma. Today, they don’t. This is why customers have no problem in taking a used car loan to buy used cars. This has led to a proliferation of an interesting trend. While car financiers used to give 50-60% finance of the user car on-road price, financial institutions today are much more open-minded. For instance, Tata Capital’s second-hand car loan can be up to 90% value of the used car. In special cases, the loan can even be 100%. A rising number of banks and financial institutions are following this trend and opening up their finances to completely cover the cost of people who buy used cars. Even today, many banks want a down payment of up to 20% from borrowers.
Longer loan tenures:
In the unorganized second-hand car space, shorter loan tenures were the norm. The lack of borrower data and trust deficit played a major role in financiers wanting to take short bets on used car loan category. As a result, at one point in time, it was difficult to get 3-year loan tenure. But this has changed drastically. Today, a second-hand car loan can easily be of 5 years tenure. The loan tenure can be stretched for up to 7 years in special cases by top financial institutions like Tata Capital. This is helping the used car loan industry deliver on the needs of the discerning low-income car buyer who is comfortable about longer used car loan tenures.
Today is an age of customization. Borrowers are getting customized deals elsewhere. Naturally, when it comes to a used car loan a high level of customization is more of a norm than a USP. The simple monthly equated EMIs are passé. In sync with borrower income patterns, the repayment for a second-hand car loan is being customized. For instance, Tata Capital gives borrowers the option of customizing their used car loan repayment schedule. This is done as per the borrower convenience. There are also step-up EMIs where the repayment amount increases gradually. There is also the step-down EMI version where the EMIs reduce every year. Also, there are bullet payment options where borrowers are allowed prepayment in parts, at periodic intervals. Lastly, there is the ballooning option where it starts with lower EMIs and then there are bigger payments up to last EMI.
Holistic appraisal of the borrower: You don’t need to be rich and flashy to be able to buy cars. A second hand used car loan is designed for families who aspire to own a car within their budget. Hence, financial institutions like Tata Capital are using different factors to assess the creditworthiness of borrowers. This has led to the differential interest rate structure being used for people wanting to buy used cars with loans. The interest rate is applicable on individual cases depending on various factors such as the age of the used car, type of second-hand car, customer credit score, ability to pay back second-hand car loan, customer’s work/business experience, age and profession of the borrower. While Tata Capital has a minimum interest rate of 13.5% for a car loan, this can vary on the aforementioned factors. Such a trend is allowing top financiers to right-price the loan and giving a loan to everybody.
As you can see, these 4 key trends are redefining the second-hand car loan industry. For the customer, a used car loan today is a friendly credit product that is personalized and delivered with no hassle. This is a reason why more people are opting to buy used cars.