Car loan rates set to skyrocket next week

Car loans  could get costlier just as the festival season drives into Motown. Top financiers ICICI and Kotak are “thinking” about a 100 basis point hike in rates next week. HDFC, however, said it had no such plans. Already, financiers are expecting 15-40% drop in total disbursals this festive season.

The liquidity crunch has also led to an increase in the cash component in car loans as well as larger number of all-cash buys. Financed vehicles comprised 90% of all sales four years ago. Today it’s down to 62-65%.

Strapped by the tight liquidity situation, top financiers see rack rates going up some more. “Costs are going up, so everyone is thinking about it,” said a senior executive with one of the big three financiers. Sources say ICICI is “seriously thinking about it and will take a call shortly”. Ditto for Kotak which will “take a call by Monday or Tuesday”, said a source.

Currently, average rack rates for car loans are around 14-15%. Typically, a 5-year car loan works out to around Rs 2000/lakh per month. And a 100 bps increase will hike this amount by Rs 50. That may seem small, but it adds up in the end. For a hatchback car like Santro/Zen Estilo or WagonR, whose financed amount works out to around Rs 3 lakh, this would mean a Rs 150 increase per installment.

In a year, the hike would amount to around Rs 1800-2000. In five years, the extra payout would be to the tune of Rs 8000-10,000. For a luxury car like the C-Class Mercedes Benz, a 100 bps increase will mean a hike of about Rs 700-1000 per month and Rs 12,000 a year.

In five years, the interest increase works out to around Rs 60,000. And mind you, these small interest increases aren’t one-off cases and they have been piling up of late.

The liquidity crisis and the sentiment slowdown has already hit financiers, as auto loan business gets stuck in first gear. Disbursal this festive season will see a sharp fall ranging from 15% to 40%. HDFC, which clocked around Rs 800 crore last festive season, is expecting around Rs 700-750 crore at the most this time round.

Kotak, which did around Rs 275 crore last year, sees a 15-20% fall while ICICI, which clocked Rs 1,200 crore last year, should see a 20-40% spike.

Car financiers and manufacturers were actually trying to offer more competitive rates during the September shraadh.Maruti Suzuki made its entire portfolio available at a discounted rate of 12.53% to 13.13% against the earlier 15-17% slab.

Rival GM did a ditto offering its Optra Magnum at 8.55% and Toyota’s Innova multi-utility vehicle was available at interest rate  of 7.9%.

SOURCE:ET