Used car financing reached Rs 1.3 lakh crore by June 2026, growing faster than new auto loans. While formal credit penetration is rising, investors should track higher delinquency rates and the increased use of unsecured debt among borrowers.
The financing of pre-owned vehicles in India has seen rapid growth, with the portfolio reaching Rs 1.3 lakh crore by June 2026. Over the past five years, this segment grew at an annual rate of 26.2%, significantly outpacing the 17.6% growth seen in new auto loans. This shift reflects a move by Indian consumers toward formal financial channels for buying used cars, a trend that is reshaping the vehicle finance industry.
While this expansion signals broader credit penetration, it brings specific risks that investors should understand. A closer look at the data shows that the used car segment faces higher stress levels compared to the traditional new auto loan market. For instance, early-stage delinquencies—loans that are 31 to 90 days past their due date—stand at 3.1% for used car financing, whereas new auto loans show a lower delinquency rate of 2.1%.
Why The Risk Profile Matters
The difference in credit risk between these two segments is tied to the borrower profile. Lenders are increasingly noticing that borrowers in the used car segment are more likely to hold multiple unsecured loans, such as personal loans, credit card debt, or consumer durable loans. Approximately 9.2% of used car borrowers have exposure to these types of unsecured debts, compared to only 6.4% of borrowers in the new auto loan category.
For lenders, particularly non-banking financial companies (NBFCs) and banks that are aggressive in the used car segment, this means that credit quality requires tighter monitoring. A high reliance on unsecured debt makes these borrowers more vulnerable to financial shocks, which can lead to higher defaults if the economic environment becomes challenging.
Sector Context and Investor Monitorables
Despite the specific stress in the used car segment, the broader 'wheels finance' industry, which covers two-wheelers and commercial vehicles, appears to be stabilizing. The commercial vehicle finance market also saw strong demand, growing at an annual rate of 20.1% to hit Rs 7.4 lakh crore by June 2026.
For investors and market participants, the key monitorable is not just the topline growth of these portfolios but the underwriting quality. As competition to capture the pre-owned vehicle market intensifies, lenders may be tempted to lower their lending standards to gain market share. Investors should track whether lenders can maintain their profit margins without significantly increasing their bad loans.
Going forward, the sustainability of this growth will depend on how well lenders manage the balance between expanding their book and maintaining healthy asset quality. Future updates from major vehicle financiers on their asset quality, collection efficiency, and the borrower profile of new loan originations will provide more clarity on whether this segment remains a profitable growth engine or a potential area of rising credit risk.