Borrowing from a bank to buy a car is indeed antediluvian hat. How about borrowing money by offering your old car as a collateral? Well, that seems to be The Trend on Finance St now.
A reality check would not be out of place here: You won't get a paisa if your car is a Premier Padmini, 118 NE, Ambassador, Contessa Classic or Tata Estate. Only new models can fetch you the loan, owing to the simple arithmetic of saleability.
And the loan available per car is a maximum 70 per cent of the value of the car.
ABN Amro was the first off the block and has been hawking loans against used cars for two months now -- a product conceptualised by Citibank.
The latest one to join this bandwagon is HDFC Bank, while Standard Chartered Bank is proposing to launch the product soon.
ABN Amro's vice-president, Nitin Chopra, said: "The product targets the salaried class and professionals who want immediate liquidity. A car is traditionally considered as a luxury or a dead asset. Now, this can be used to generate liquidity."
On the success of the scheme, Chopra said that it has been doing better than expected. "We are ahead of targets," he said.
Citi's vice president and business head (auto), Sanjoy Sen, said: " Loans against used cars has always been part of Citi's auto loan programme. However, this offering has gained momentum recently due to the increased sale/ purchase of used cars."
ABN Amro is offering the loans at 19.5 per cent rate of interest. In addition to that it charges 2 per cent service charges. Citi charges between 17 to 19 per cent interest rate. The tenure of the loan is normally three years and there should not have any other lien on the car.
ABN is offering loans up to 70 per cent of the value of the car. The bank also facilitates the process of validation and that of endorsing the hypothecation through pre-designated agencies.
ABN's Chopra said initially, the scheme is being launched in seven cities.
In phase II of the project, the scheme will be launched in 26 cities where the bank already is offering its auto loans and personal loans.
Citi offers the loan in all the 41 location where it does auto business.
HDFC Bank, which launched the product last month, is offering the product only to its existing customers of auto loans who have a good repayment record.
The bank offers the customers 50 per cent of the loan amount with an interest rate of 17.5 per cent along with a 1 per cent service charge. The maximum age of the car cannot be more than five years.
