NBFCs increase their focus on financing of used vehicles purchases

8 May 2023 , 08:35 AM

In order to grow over the next two to three years, non-banking financial companies (NBFCs) have increased their focus on financing of  purchase of used vehicles.

Used EVs are expected to be accepted more widely in metro areas, according to Mahindra Finance, Shriram Finance, Poonawalla Fincorp, Cholamandalam Finance, and others. According to news reports, the market’s penetration of finance has increased from 20% one year ago to around 35% at present.

Used-car loans have typically had higher interest rates. The difference in borrowing rates between new and used cars, which had previously been 400 basis points, has now shrunk to 250 basis points, according to the companies.

The increased transparency of a more organized sector is the other major factor underlying the ongoing development momentum.

The global market for second-hand cars increased by 7% in FY23 to 4.5 million units; by FY26, it is predicted to reach 7 million vehicles.

This is true even if EVs seem to depreciate more slowly than comparable internal combustion engine (ICE) vehicles. A two-year-old EV sells for between 70 and 75% of what a new car costs, whereas an ICE model of comparable age experiences a price decrease of at least 50 to 60%. The higher cost of new EVs is influencing consumers who want to drive more sustainably to choose used cars instead, according to an official at an EV manufacturer.

Mahindra First Choice Wheels, a manufacturer of used cars, concurred that as the industry becomes more organized, used cars are becoming more accepted.

An NBFC executive told ET that NBFCs are less risk-averse than banks, which are reluctant to finance second-hand autos. In addition to providing affordable rates, NBFCs are also digitally integrated, which speeds up the financing of used auto loans, the speaker continued.

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