Pre-Owned Cars, Fast-Growing Loans: India’s ₹1.3-Lakh-Crore Credit Shift

MUMBAI — Used car financing in India grew at a significantly faster rate than traditional auto loans over the past five years. While expanding off a smaller initial base, the trend reflects an increasing consumer preference to secure credit from formal financial institutions, according to a report released Wednesday by credit bureau CRIF High Mark.

The portfolio outstanding on used car loans recorded a compounded annual growth rate (CAGR) of 26.2 per cent, surging from approximately ₹40,000 crore in June 2021 to ₹1.3 lakh crore by June 2026. In comparison, standard auto loan portfolios grew at a 17.6 per cent CAGR over the same period, reaching ₹9.9 lakh crore in June 2026 from ₹4.4 lakh crore in June 2021.

Financial Institutions Expand Used Car Lending Amid Portfolio Stress

Financiers continued to scale used car lending despite noticing higher delinquency rates compared to new auto financing. According to the CRIF High Mark report, loans unpaid between 31 and 90 days (early-stage delinquency) reached 3.1 per cent in the used car portfolio, compared to 2.1 per cent for traditional auto loans.

In the 91–180 days unpaid category (late-stage delinquency), used car loans stood at 1 per cent, whereas standard auto loans recorded a lower stress level at 0.6 per cent.

From a leverage profile perspective, both product categories reflect a similar proportion of borrowers carrying more than two active vehicle loans. However, used car loan borrowers show a higher inclination toward holding parallel unsecured consumption credit, such as personal loans, consumer durable financing, and credit cards. This unsecured credit overlap stands at 9.2 per cent for used car borrowers, compared to 6.4 per cent for auto loan borrowers.

Broader 'Wheels Finance' Sector Shows Asset Quality Stability

Despite early-stage pressure in specific categories, asset quality across the overall "wheels finance" segment—which encompasses two-wheelers, commercial vehicles, new auto loans, and pre-owned car loans—is showing signs of stabilization.

The commercial vehicle loan segment recorded the second-fastest growth among vehicle loans over the five-year evaluation period, growing at a 20.1 per cent CAGR to reach ₹7.4 lakh crore in June 2026, up from ₹3 lakh crore in June 2021.

Official Announcements

"The vehicle financing sector is healthy and keeping pace with an expanding retail market, driven heavily by commercial vehicles and the formalisation of the used car market, while auto loans lean toward premiumisation to recapture momentum," stated CRIF High Mark in its official report released on Wednesday.

Market Impact

• For Borrowers and Consumers: Increased participation from formal banking channels and Non-Banking Financial Companies (NBFCs) provides used car buyers with higher access to organized credit, reducing reliance on informal lenders.

• For Banks and Lenders: Financial institutions face a dual scenario: rapid credit market growth in pre-owned vehicles alongside elevated early-stage repayment stress, necessitating stricter risk-assessment standards and tighter underwriting.

• For Used Car Platforms and Dealers: Organized pre-owned car dealerships benefit directly from the credit expansion as easier access to credit drives higher vehicle demand and transaction volumes.

Why It Matters

The shift highlights a structural transition in India's personal mobility finance landscape. As vehicle prices rise and consumers opt for affordable personal transport, formal used-car financing is transitioning into a core retail credit segment. However, lenders must manage higher credit risks and overlapping consumer debt among used car loan borrowers.

Key Facts at a Glance

• Used Car Loan Growth: Portfolio grew at a 26.2% CAGR over 5 years to reach ₹1.3 lakh crore in June 2026.

• Auto Loan Growth: Standard auto loans grew at a 17.6% CAGR over 5 years to reach ₹9.9 lakh crore in June 2026.

• Delinquency Comparison (31–90 days): 3.1% for used car loans versus 2.1% for auto loans.

• Commercial Vehicle Finance: Second-fastest growing vehicle finance segment at a 20.1% CAGR, reaching ₹7.4 lakh crore.

• Unsecured Loan Exposure: 9.2% of used car borrowers carry unsecured consumer debt, compared to 6.4% of standard auto loan borrowers.

Frequently Asked Questions

Q1: Why are used car loans growing faster than new car loans in India?

Used car loans are growing rapidly due to the formalization of pre-owned vehicle markets, increased availability of financing options from banks and NBFCs, and rising preference among consumers to purchase affordable pre-owned vehicles using formal credit.

Q2: What is the current market size of used car financing in India?

According to CRIF High Mark, the portfolio outstanding for used car financing reached ₹1.3 lakh crore as of June 2026.

Q3: Are default rates higher on used car loans compared to auto loans?

Yes, early-stage stress (31–90 days unpaid) is higher for used car loans at 3.1 per cent, compared to 2.1 per cent for traditional auto loans. Late-stage stress (91–180 days) stands at 1 per cent for used car loans versus 0.6 per cent for auto loans.

Q4: How does borrower debt profile differ between used car and new car buyers?

A higher percentage of used car loan borrowers (9.2%) hold additional unsecured consumption loans—such as credit cards or personal loans—compared to new auto loan borrowers (6.4%).

Source: Press Trust of India (PTI)