Used Car Financing Market - Growth, Trends, COVID-19 Impact, and Forecasts (2023-2028)

The Global Used Car Financing Market is valued at USD 244.17 billion and is expected to reach USD 453.08 billion over the coming five years, with a combined CAGR of 10.78% during the same period.

The global used car market is moderately consolidated with several OEMs, auction houses, and pre-owned dealers who strive to expand their fleet size to offer a wide pool of financing opportunities to their clients.

During COVID-19, globally, used car financing witnessed a steady decline owing to the spread of the virus, and people avoided purchasing cars amid the economic slowdown. In addition, markets, showrooms, and auction events were closed down as strict lockdown measures were imposed by the regional government. Although, after Q1 2021, everything was on track, with the used car financing business achieving the pre-pandemic growth rate.

Major consumers around the globe are facing financial instability post-pandemic, which, in turn, has boosted the demand for used cars. This is likely to be a major growth factor for the market. In addition, the rising consumer preference toward owning a personal vehicle and avoiding public transportation is also identified as a key fueling factor for the global used car market. Ownership of cars, which used to be a status symbol long ago, has become a necessity in recent times and is deeply identified by the key financers and pre-owned car owners.

Furthermore, the Asia-Pacific region has been identified as the epi-center of the rising demand for used cars. The region holds a population density of middle and lower-income group classes that are anticipated to hold a large share in financing used cars.

Thus, due to the above mentioned factors, the demand in the market studied is expected to witness a high growth rate over the forecast period.

Used Car Financing Market Trends

OEM Based Financing to Provide Momentum

Any car that has been owned before and is now being resold through a private seller, classified ads, or local dealers without undergoing a thorough vehicle inspection test by experts is considered a used car. On the other hand, a certified pre-owned (CPO) car vehicle has previously been extensively inspected (pre-purchase inspection) and reconditioned properly to perfection by professionals.

The demand for OEM-based car financing came with shifting consumer preferences. This came after the transparency and originality offered by OEM-based cars and offers provided by them over financed vehicles. Consumers, over time, felt that the risk of fraud has been growing with the financing of these cars. Thus, they are likely to rely upon the OEM-based financiers available at the showroom in order to keep the process seamless. In addition, these financiers offer much more effective installment amounts at competitive interest rates. This helps people to own a personal car at a much-lowered price at affordable EMI installments. This reduces the burden of one-time payments just with a 30% initial down payment.

OEMs are exploring their business potential to expand their offerings in the financial services of the used car segment. For instance, in July 2022, Toyota Kirloskar Motors inaugrated its used car outlet in India, which will offer its OEM refurbished used cars to its customer. In addition, the company is also providing value added finance options from Toyota Financial Services India for used car buyers.

Furthermore, considering these potential factors related to financing used cars, the demand for the same is anticipated to proliferate in the OEM segment during the forecast period.

Asia-Pacific likely to Exhibit the Highest Growth Rate during the Forecast Period

The used car business has slowly picked up pace in the Asia-pacific region, owing to the high population density, largely with the middle- and lower-income groups. This has created a demand to own a pre-owned vehicle in a better condition that can be brought at half the price. In addition, used car service providers are even offering pre-owned vehicles, which are still in the warranty phase, with additional service coupons to engage consumers.

Since vehicles are pre-owned, companies are also offering financing facilities to reduce the burden on car buyers, who are less willing to pay the amount initially. This allows the consumer to take pre-owned car delivery by just giving the token/down payment amount, which is about 10-15% of the vehicle cost and can complete the remaining payment in installments with some rate of interest based on the offering authority guidelines.

Countries like China, India, Indonesia, and other ASEAN countries hold high potential for the sale of pre-owned cars, which is expected to drive the market during the forecast period. As per the China Auto Dealers Association, China's 40% of used cars in the country are bought on credit. It is projected that China's second-hand vehicle financing market will reach CNY 1 trillion in a few years.

Non-Banking Financial Companies (NBFCs) are witnessing an increase in demand for financing used vehicles post-COVID-19 across the Indian markets as well. The leading NBFCs, such as Mahindra Finance, Shriram Finance, and Magma Fincorp, have been forced to struggle with the rising cost of funds amid a liquidity squeeze that was sparked by Infrastructure Leasing & Financial Services (IL&FS). Even financiers have tightened the screening of borrowers and are now going slow on the relatively higher-risk segments. In lieu of this situation, several lenders have turned to funding used cars to protect their margins.

Considering these developments, the demand for pre-owned car financing in the Asia-Pacific region is expected to witness a high growth rate during the forecast period.

Used Car Financing Market Competitor Analysis

The market for used car financing around the globe is moderately consolidated. The presence of many organized and unorganized players has created a favorable market scenario. Also, most auto manufacturers, apart from offering their own financing, have tie-ups with banks and other financial institutions to offer a wider choice for their customers. But relatively easier procedures to procure a loan from various NBFCs are expected to tilt the market in their favor.

Financiers, including OEM, banks, and NBFCs, have made stregatic forefront in order to improve the sales bars in the market.

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