The used-car market is highly fragmented and there are no standardised norms for pricing. In the case of new cars, the price is fixed by the manufacturer, while in the case of used cars, pricing is at the discretion of the owner.
Valuation an issue: Roughly four million used cars are sold in India every year. “The average loan size is Rs 3 lakh. But less than five per cent get organised finance,” says Vinay Sanghi, founder and chief executive officer, CarTrade.com. By contrast, about 85 per cent of new cars are purchased through organised financing. The big stumbling block for banks is getting an accurate estimate of value in the case of used cars. “One reason why finance is not available is that banks and NBFCs don’t understand how to price the loan. In used cars, you need to understand the condition, documentation and the price of the car because at the end of the day, it is hypothecated to the lender. Lenders’ don’t understand how to collateralise the car,” he says.
Proper documentation essential for loan: The key challenge for borrowers is to ensure the correct documents for the vehicle are all available, such as registration certificate and valid comprehensive insurance. Apart from this, the customer also needs to check on the valuation, age of the vehicle and model, and demand in the market. Says Ramesh Iyer, vice chairman and managing director, Mahindra & Mahindra Financial Services: “The customer also needs to have income proportionate to the desired loan. Usually, the car valuation is benchmarked to the blue book valuation, Insured Declared Value (IDV) fixed by the insurer or valuation certified by authorised valuers.’’
Lenders are more comfortable if the car is being purchased from an organised player. The creditworthiness of customers of used cars is not very different from that of new customers and lenders apply standard recovery processes, as applicable to any other retail loan product.
CarTrade has launched a pilot project in five cities where it has tied up with banks and NBFCs to provide financing for used cars. CarTrade’s service desk does the condition, valuation and documentation check for its customers. Even if the car you are buying is not registered on CarTrade, you can get a loan throughthe platform.
- Most lenders give a loan only for certified cars, hence it is advisable to buy from a branded and certified player
- Some lenders don’t give loans for vehicles, which are more than seven- or eight-year old
- Valuation of the car depends on the condition, number of years and distance covered
- Vehicle’s make, model, variant and any history of being involved in an accident also impacts valuation
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