Market Trends of Used Car Financing Industry
This section covers the major market trends shaping the Used Car Financing Market according to our research experts:
OEM Based Financing to Provide Momentum
Any car that has been owned before and is now being resold through a private seller, classified ads, or local dealers without undergoing a thorough vehicle inspection test by experts is considered a used car. On the other hand, a certified pre-owned (CPO) car vehicle has previously been extensively inspected (pre-purchase inspection) and reconditioned properly to perfection by professionals.
The demand for OEM-based car financing came with shifting consumer preferences. This came after the transparency and originality offered by OEM-based cars and offers provided by them over financed vehicles. Consumers, over time, felt that the risk of fraud has been growing with the financing of these cars. Thus, they are likely to rely upon the OEM-based financiers available at the showroom in order to keep the process seamless. In addition, these financiers offer much more effective installment amounts at competitive interest rates. This helps people to own a personal car at a much-lowered price at affordable EMI installments. This reduces the burden of one-time payments just with a 30% initial down payment.
OEMs are exploring their business potential to expand their offerings in the financial services of the used car segment. For instance, in July 2022, Toyota Kirloskar Motors inaugrated its used car outlet in India, which will offer its OEM refurbished used cars to its customer. In addition, the company is also providing value added finance options from Toyota Financial Services India for used car buyers.
Furthermore, considering these potential factors related to financing used cars, the demand for the same is anticipated to proliferate in the OEM segment during the forecast period.
Asia-Pacific likely to Exhibit the Highest Growth Rate during the Forecast Period
The used car business has slowly picked up pace in the Asia-pacific region, owing to the high population density, largely with the middle- and lower-income groups. This has created a demand to own a pre-owned vehicle in a better condition that can be brought at half the price. In addition, used car service providers are even offering pre-owned vehicles, which are still in the warranty phase, with additional service coupons to engage consumers.
Since vehicles are pre-owned, companies are also offering financing facilities to reduce the burden on car buyers, who are less willing to pay the amount initially. This allows the consumer to take pre-owned car delivery by just giving the token/down payment amount, which is about 10-15% of the vehicle cost and can complete the remaining payment in installments with some rate of interest based on the offering authority guidelines.
Countries like China, India, Indonesia, and other ASEAN countries hold high potential for the sale of pre-owned cars, which is expected to drive the market during the forecast period. As per the China Auto Dealers Association, China's 40% of used cars in the country are bought on credit. It is projected that China's second-hand vehicle financing market will reach CNY 1 trillion in a few years.
Non-Banking Financial Companies (NBFCs) are witnessing an increase in demand for financing used vehicles post-COVID-19 across the Indian markets as well. The leading NBFCs, such as Mahindra Finance, Shriram Finance, and Magma Fincorp, have been forced to struggle with the rising cost of funds amid a liquidity squeeze that was sparked by Infrastructure Leasing & Financial Services (IL&FS). Even financiers have tightened the screening of borrowers and are now going slow on the relatively higher-risk segments. In lieu of this situation, several lenders have turned to funding used cars to protect their margins.
Considering these developments, the demand for pre-owned car financing in the Asia-Pacific region is expected to witness a high growth rate during the forecast period.
