Although car sales today are still lower than what they used to be in FY19, auto loans are causing a collective gasp of excitement. This time a year ago, car sales were barely leaving the showrooms due to covid and loans were more or less flat but this time two years ago, automobiles were recording their historic volumetric peaks with traditional models as some new players were only just putting ink to paper and others getting their manufacturing plants ready to run. Auto loans were growing at the time; albeit not with the same enthusiasm of today.
Based on Mar-21 numbers, in fact, the monthly incremental stand at Rs12 billion while total auto loans are close to touching Rs300 billion. To put these numbers in context, assuming that the average size of the car loan is Rs2.5 million, over the past six months, about 3500 cars are being granted a loan each month and at the moment, about 114,000 cars have an active car loan on them. Unfortunately, one can only speculate which model/make of the cars are being brought on loan but market sentiments suggest, even the new cars by Kia, Hyundai and even some Chinese make vehicles are also in the mix.
To be sure, this is a direct result of more affordable car financing brought on by lower interest rates. The Kibor is trailing 7.6 percent which result in bank financing rates falling somewhere between 11 percent to 13 percent (depending on the bank). These rates were much higher during FY19 when the Kibor was around 11 percent and the borrowing cost to the loan seeker landing at above 15 percent. But prices of cars were lower. On averages, prices this year are at least 20-25 percent higher than FY19.
The lower borrowing rates are evidently allowing consumers and corporate buyers to purchase cars through the bank and lower the monthly burden on their respective pockets. For individuals, specially those that are salaried employees with limited incomes, the financing facilities has provided an avenue to absorb the higher price point.
Auto loan numbers will continue to rally as volumes come back for the traditional Japanese models as well as models offered by the new cohort of auto assemblers until such a time when interest rates begin to move up again. Since prices are so far staying put, this is the perfect time for consumers to sign on those car loans papers. The future is inflationary.