[SmartCat]

I just discovered that one could pledge car and get a loan against the collateral. Is this well known?

https://www.thenewsminute.com/articl...inst-car-74997

All major banks are offering 'loan against car' personal loans.

Highlights:

- Interest rates are likely to be lower than personal loans
- Max loan amount up to 150% of car's market value.
- Minimum loan amount Rs. 1,00,000.
- Most banks insist that the car is not more than 5 years old
- Maximum loan tenure of 5 years

[libranof1987]

Originally Posted by smartcat

I just discovered that one could pledge car and get a loan against the collateral. Is this well known?

Rather strange isn't it. Handing out a loan on a depreciating asset. Most common assets for loans-against-collateral are property or gold which rarely go down in value. Add to that, the issue of potential damage during the course of the loan.

There's too much risk riding on this for the lender.

[dhanushs]

Originally Posted by smartcat

I just discovered that one could pledge car and get a loan against the collateral. Is this well known?

Yes, this was/is very popular in small towns, where people do pledge their RC's to get loans. Where personal loans weren't that popular because of no IT returns of most applicants. Nationalised Banks usually didn't give loans, except for known customers, but, with the current financial situation of banks, I guess they are eager to give all kinds of loans.

Originally Posted by libranof1987

Rather strange isn't it. Handing out a loan on a depreciating asset....

Not really, its basically like a used car loan. Where AFAIK, 7 years is the tenure. So, if your car is 2 years old, you are eligible for 5 more years of loan and if its 5 years old, you can get two more years.

Earlier, banks also used to consider the model of cars. Popular models used to get full 7 years whereas not so popular ones didn't get approval or get it for a lesser period.

[GTO]

This is an old way of financing. I remember receiving offers from loan companies as soon as the EMIs were paid off.

Originally Posted by libranof1987

Handing out a loan on a depreciating asset.

Well, even a new car loan is a loan against a depreciating asset .

On existing cars, they retain enough of a buffer to account for any depreciation. Example: If the car is worth 5 lakhs, they'll give you a loan of 3 lakhs.

Max loan amount up to 150% of car's market value.

This is new and sounds hard to believe. I'm guessing if they give you 150 bucks against a car that's worth 100 bucks:
- 100 bucks is like any other personal loan
- 50 bucks is against the car as collateral

[GrandTourer]

This is actually not surprising at all, owing to the booming securitization market in India. The risk of default does not rest with the lender anymore. This results in very lenient criteria for car loans.

A little background on securitization (How it works):
* A bank/lender gives out a loan to an individual
* This loan contract is then sold to a special purpose trust which takes 1000s of such loans and pools it together in a new product (called Asset backed security)
* This is then sold to investors (insurance companies, hedge funds, etc.) at a fair price (banks recover their principal)
* Not the lender is no way involved in the loan. Also risk is shifted to investors
* All EMIs go to investors, so banks are not in the picture anymore

This gives banks and small lenders free reign to give out more loans.
The underwriting (eligibility) becomes just a formality.
And that's why we see loans with 150% value of the collateral.

And guess how much do vehicle loans make up of the total securitization market in India... 70% as of 2018, which is about 24000 crores.

So yes, I don't find it surprising that banks are getting greedy and giving out bad loans.


Also, there are lots of mechanisms to protect against default, like guarantees, loan insurance, etc. All the more reason to give out bad loans

[aargee]

Originally Posted by smartcat

I just discovered that one could pledge car and get a loan against the collateral. Is this well known?

Since TNM hadn't listed the banks, I thought it must be another fake. But it turns out to be true!! Hopefully this bubble doesn't burst!

Axis Bank

These guys are everywhere

and HDFC

[pradeepkc]

I apologise if it isn't relevant here. I just came across this ad on Olx and had to know, is this legally possible in India? Can someone really just give their car to private citizens as collateral for a loan?

I've found this on #OLX. What do you think? I want give my XUV 500 for Lease or pledge (2% interest) http://www.olx.in/item/i-want-give-m...iid-1571170180