Evolving preference for a contemporary lifestyle prompts the replacement of older vehicles with newer models, ultimately enhancing the overall driving experience. A recent report from Research and Markets said this transition is notably conspicuous in major metropolitan areas where automobile sales are witnessing a surge. Moreover, the emergence of non-banking financial companies (NBFCs) offering enticing propositions like low-interest rates, zero down payment plans, and affordable Equated Monthly Installments (EMIs) has considerably bolstered the global demand for car loans. All these factors will drive the global car loan market to witness significant growth in 2028, the report noted.
Car loans are extended by diverse financial institutions encompassing banks, NBFCs, Original Equipment Manufacturers (OEMs), and fintech enterprises. Borrowers are obligated to reimburse the loan through structured EMIs over a predetermined period, accompanied by a fixed interest rate. According to a 2022 CNBC report, inflation has impacted household budgets, resulting in some American households grappling with their monthly car loan obligations, the report said.
In the United States, passenger car sales reached an estimated 3.3 million in 2022, with the most popular models including the Ford F Series, Chevrolet Silverado, Toyota RAV4, and Toyota Camry. The average interest rate for new car loans climbed to 5.2% during the third quarter of 2022, while used car loans averaged 9.7%. This indicates an escalating demand for car loans in the foreseeable future.
In 2021, Maruti introduced an online platform for car financing options, granting customers convenient access to loan packages and financial partners through Maruti Suzuki Smart Finance. This platform streamlines the loan application process, enabling customers to complete documentation and receive funds online. Consequently, customers can effortlessly secure car loans, thus propelling the expansion of the global car loan market.
The market is further stimulated by the reduction in car loan interest rates offered by financial institutions. Banks, OEMs, and NBFCs compete, resulting in competitive interest rates to attract customers. For instance, the Bank of Baroda announced a reduction in car loan interest rates from 7.25% to 7% per annum in 2022. Furthermore, the penetration of NBFCs into rural and non-metropolitan regions has contributed to the market share expansion of car loans.
Lenders now provide flexible loan tenures and competitive interest rates, making car ownership more attainable and expanding the car loan market.
Another pivotal factor propelling market growth is the escalating global demand for luxury automobiles. The presence of international automakers such as Volkswagen, Mercedes, BMW, and Toyota has effectively met the worldwide consumer appetite for luxury vehicles. Economic progress and urban development in Tier-2 and Tier-3 cities in emerging economies have further amplified the demand for luxury cars in these regions.
This surge notably benefits the car loan market as consumers seek financing solutions to acquire luxury vehicles. Increasing disposable incomes also contribute to the desire for automobiles, with New Jersey leading the country in luxury vehicle ownership, according to 2022 iSeeCars data. Consequently, the demand for car loans to facilitate luxury car acquisitions is projected to drive the car loan market in the forecast period, Research and Markets said.
The integration of novel technologies into existing product portfolios has the potential to galvanise market growth. Car loan providers strategically focus on delivering value-added services to their clientele by harnessing artificial intelligence, business analytics, and blockchain technologies. Expanding their products and services range, these companies aim to elevate service quality and enhance customer satisfaction.
Furthermore, these technologies enable more precise structuring of both new and used auto loans, the report said. The demand for car loans is surging due to advancements in blockchain technology, improved telematics, the ascent of online services, and the burgeoning digitalisation trend.
For instance, Kuwy, an automotive fintech platform in India, facilitates automated lending and streamlines loan processes by interconnecting individuals, vehicles, dealers, lenders, and OEMs through strategic industry partnerships and specialised solutions.
This empowers them to offer their clients the most optimal automotive loan alternatives. Customers are also displaying a preference for financiers that provide data-driven advisory services. Hence, applying innovative technologies to augment existing products and services is anticipated to drive the demand for car loan providers in the forecast period.
Courtesy: Research and Markets. NB: Photo is representational.
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