Lenders say today’s high-risk environment requires tougher underwriting standards. Ramesh Iyer, vice president and managing director of Mahindra Finance, told the Financial Express that the scheme offered by the lender is a way to help the customer by giving them a moratorium of two to three months.
The possibility of increased use of private vehicles has captivated automakers and financiers. Still, lenders want to be careful about the type of borrowers they acquire at a time when job losses and income destruction are the order of the day. Even though they entice potential car buyers with “buy now, pay later” programs, they try to ensure that only those with their finances in order can benefit. So far, Maruti Suzuki India, Hyundai India and Mahindra & Mahindra have announced tie-ups with financiers such as HDFC Bank, ICICI Bank, Cholamandalam Finance and Mahindra Finance. Some other manufacturers – BMW India, Mercedes-Benz India and Tata Motors – run EMI balloon-type programs through their group-owned financiers. Benefits on offer include zero down payment and three-month EMI waivers in some cases, as well as flexible, balloon, and intensified EMI programs, which allow borrowers to pay smaller installments initially and larger installments later in the term. of the loan.
For car buyers who want to take advantage of these benefits, the conditions that come with them are quite strict. An HSBC report dated June 9 pointed out that qualification criteria may restrict their effectiveness. For example, 100% on-the-road financing is primarily only available to salaried customers with high credit ratings, on certain high-priced but less popular models, and for customers with pre-approved bank financing offers. . Three Month Employment Insurance EMI coverage is valid for 12 months from the date of purchase, excluding the first three months, greatly reducing the likelihood of risk crystallization. Progressive EMI, flexi-EMI, and balloon-EMI programs can result in a significant increase in the EMI burden on the borrower during or near the end of the loan term.
Lenders say today’s high-risk environment requires tougher underwriting standards. Ramesh Iyer, vice president and managing director of Mahindra Finance, told FE that the program offered by the lender is a way to help the customer by giving him a moratorium of two to three months. “Credit standards will be a bit tighter because if someone wants to buy a car in this environment, we need to understand their source of margin money, how they plan to pay it back and what their earning potential is. will be put on the arrival of good customers,” he said. The obvious fallout from this could be these schemes focused on the high-end segment of the market. Ashish Singhal, Managing Director of Experian Credit Information Company India, said, “They (the programs) target customers who would have the maximum likelihood of bouncing back and who will be able to repay over the longer term of the loan. Customers who have higher income and large discretionary expenses will likely come to buy these cars and the risk of non-payment will therefore be lower.
Therefore, the customer segment benefiting from these programs may be too small to have a significant impact on auto sales, HSBC said. “Most of the offers are: i) for a limited period that coincides with the lockdown period, but more importantly, ii) targeted at specific borrower segments such as women, doctors and employees with credit ratings. high credit ratings, and (iii) targeting specific models from various manufacturers,” the HSBC analysts wrote, adding that risk aversion among financial institutions in general remains high and capital is scarce.