India’s Used-Car Loans Drive Vehicle Finance Growth

India’s used-car financing segment has emerged as the fastest-growing component of the nation’s vehicle-finance market. This trend signifies a substantial shift towards formal credit for pre-owned vehicles, moving away from traditional cash-based transactions.

Key Growth Indicators

• Used-car financing recorded a 26.2% five-year compound annual growth rate (CAGR) between June 2021 and June 2026.
• This growth outpaced commercial vehicle loans, new auto loans, and two-wheeler financing during the same period.
• The borrower base for used-car loans expanded 2.4 times over the five years.
• 75% of used-car loan originations in Q1 FY27 were from new-to-product borrowers, according to CRIF High Mark’s research.

This expansion highlights a broader formalization of the pre-owned vehicle market across India. Such a shift provides greater accessibility for buyers, but also introduces the complexities of managing loan terms.

Lender Approaches and Risk Considerations

Lenders are actively adjusting their risk profiles within this evolving market. There is a noticeable decrease in the number of unsecured borrowers, indicating a more cautious lending environment.

• An increase is observed in borrowers holding two or more active loans, signaling a potential aggregation of credit exposure.
• Early-stage delinquency, measured as PAR 31-90 days, stands at 3.1%, a metric that warrants careful monitoring by financial institutions.

For buyers, a used-car loan enhances vehicle accessibility, yet it also elevates the overall cost of ownership. Careful consideration of interest rates, loan tenure, processing fees, and down payment is essential to avoid extended, more expensive loan structures.

Expanding Reach and Premium Trends

The formalization of vehicle finance is extending its reach beyond India’s major urban centers. This expansion is particularly evident in two-wheeler and commercial vehicle loan originations from BT100 geographies.

• In the new car segment, premiumization is clear, with average auto-loan ticket sizes reaching ₹8.6 lakh.
• A growing share of new car loans now exceeds ₹15 lakh, reflecting a demand for higher-end vehicles.
• Two-wheelers continue to serve as a crucial entry point into formal credit, attracting a large and expanding base of new-to-product customers.
• The two-wheeler segment increasingly features premium and electric models, aligning with broader market trends.

While later-stage delinquency has shown improvement across various vehicle finance categories, commercial vehicle loans exhibit comparatively higher early-stage delinquency. The overall trend of borrowers holding multiple loans is also on the rise, indicating a broader shift in consumer credit behavior.