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Low interest rates spur car loans

Tuesday, 30 June 2009

01 July 2009;economictimes.indiatimes.com:Chanchal Pal Chauhan:NEW DELHI: Declining interest rates and easy availability of credit have increased the number of cars sold through loans by 15% in the past six Things to remember while purchasing a vehicle months. Around 70% of new cars sold now are financed through loans compared with 55% a year ago when loans became unattractive due to high interest rates and a credit crunch. The major push has come from PSU banks such as State Bank of India, the country’s largest bank, which has emerged as the second-largest disburser in the car finance business after HDFC Bank. PSU banks are offering car loans at 10% while private banks like HDFC, ICICI and Kotak Mahindra are offering them at 11.5-13%. Hyundai Motor India senior vice-president (sales & marketing) Arvind Saxena said, “It’s a big positive development. Easier finance will expand the car market and generate fresh demand. We are expecting healthy increase in car sales in the next few months.” In 2007, when the interest rate were in single digits, over 80% cars sold were financed and led to rapid rowth in car sales. Bankers say customers are milking the rapid fall in interest rates over the past six months and making fewer cash down purchases. “Though India was not impacted by the global economic downturn, the general improvement in sentiment has boosted the retail finance market. The low interest rate has prompted customers to go for loans instead of cash deals,” said HDFC Bank executive vice-president for auto loans, Ashok Khanna. According to five bankers and financiers ET spoke with, the percentage of cars sold on loans is likely to go back to the peak 80% after the Budget. “We have eased lending norms and almost doubled the dispersal funds for auto. There has been a huge rush of customers opting for the 10% fixed rate on auto loan,’’ a senior executive of SBI Bank said, requesting anonymity. This change comes almost a year after the government eased lending norms and pumped liquidity in the market to stimulate demand. Car sales grew 3.29% to 2.16 lakh units in April-May period over last year and the growth is likely to increase with several banks likely to drop interest rates in the near future.