Used Car Loans Surge 26% CAGR, Outpacing New Auto Loans
By Business Desk
Discover how used car financing in India is rapidly expanding at a 26.2% CAGR, surpassing new auto loans despite higher stress levels. Learn more about the trends.
Rapid Expansion in Used Car Financing
A recent report by Crif High Mark indicates that used car financing has demonstrated significantly faster growth compared to traditional auto loans over the past five years. This expansion occurred despite the used car segment starting from a comparatively smaller financial base.
The outstanding portfolio for used car finance surged at a compounded annual growth rate (CAGR) of 26.2 percent.
This saw the portfolio grow from approximately Rs 40,000 crore in June 2021 to a projected Rs 1.3 lakh crore by June 2026.
Conversely, the overall auto loan portfolio experienced a CAGR of 17.6 percent during the identical period.
Its total value increased from Rs 4.4 lakh crore to Rs 9.9 lakh crore over the five years.
Understanding Asset Quality and Stress
Despite the notable growth, financiers encountered heightened stress within the used car lending segment. The Crif High Mark report specifically highlighted a larger proportion of loans facing payment delays.
For used car loans, 3.1 percent were unpaid for 31-90 days, compared to 2.1 percent for new auto loans.
However, for longer delinquencies of 91-180 days, used car loans performed marginally better at 1 percent, though still exceeding new auto loans at 0.6 percent.
Borrower Profiles and Market Stabilization
The study also revealed distinct borrower characteristics between the two loan types. Borrowers of used car loans tend to hold a higher proportion of unsecured consumption loans.
These include personal loans, consumer durable loans, and credit cards, accounting for 9.2 percent of their total borrowings, versus 6.4 percent for auto loan borrowers.
On a broader scale, the asset quality across the entire ‘wheels finance’ segment, which encompasses two-wheelers and commercial vehicles, is demonstrating signs of stabilization. This broader segment is crucial for understanding the overall health of vehicle financing.
The commercial vehicle segment also registered substantial growth, expanding its portfolio at a CAGR of 20.1 percent.
This growth led to a total portfolio of Rs 7.4 lakh crore over the last five years.