Car loan rates likely to take peak
By Vaibhav Aggarwal
Jul 5, 2010
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Policy rate hike by the Reserve Bank of India has set grounds for rise in auto loan rates from next week.

The RBI has raised repo and reverse repo rates by 25-50 basis points.

Car loan borrowers would now have to pay an additional Rs 100 as EMI on a loan amount of Rs 4,00,000 for a tenor of 36 months.

This rate hike would be the second of its kind in this fiscal. The previous rate hike had come in April.

The current car loan rate varies in the range of 9.5% to 12.5%. Currently, 70% of the cars are bought through loans.

"We will review interest rates on auto loans next week and are looking at raising it by at least 25 basis points, which will be a marginal increase over the exiting rates of 9.75 per cent," Sumit Bali, chief executive officer, Kotak Mahindra Prime, said.

According to Manju Srivatsa, president (retail), Axis Bank, interest rates depend on multiple factors and there is scope for another hike from next week. "The bank has already taken a hike of 25-50 basis points two months ago and this will be the second hike in four months of the ongoing financial year."

"Even if banks decide to hike interest rates after the RBI decision, it will not impact the purchasing decision of Indian car buyers. However, we may see overall growth moderating to 15-18 per cent as against over 30 per cent that we have been seeing since January this year, as the pent-up demand has been met with several new launches in the passenger car category in the past," said VG Ramakrishnan, senior director (automotive practice), Frost &Sullivan.


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