Used car sellers have a reason to be happy since availability of finance for prospective buyers is set to improve.

In the event of financial crisis in 2008, banks had stopped lending to this sector since many borrowers were defaulting on their repayments and banks that repossessed cars from defaulters were finding it difficult to sell these cars and recover their money due to a significant drop in their valuations.

However, owing to the increase in activities of used car dealers like First Choice (Mahindra & Mahindra), True Value (Maruti), Infinity Cars (BMW), Honda Auto Terrace, Fortune Cars (Tata Motors) etc, banks are looking forward to increase lending to the segment again.

"We are bullish on the used car loans space. The category has become a lot more institutionalised, as against a dealer here and a dealer there earlier," says Pralay Mondal, country head - retail assets and credit cards at HDFC Bank.

The largest mortgage lender accounts for 37 percent market share in the total car loans market and is working on a couple of tie-ups for used car loans.

Looking at dealers, non-banking finance companies are also showing keen interest in the sector. Some of these NBFCs include Shriram City Union Finance and Family Credit.

Initially the market was largely unorganized but with organized players entering the segment, the interest rate differential between the new car loan and used car loan is likely to squeeze.

Sumit Bali, CEO, Kotak Prime says that as the Indian market is shifting from developing to developed, revenue generated from the used carmarket would be much higher than that from the new car market.

According to him rates are being revised. The rates offered depend on the vehicle purchased.

Kotak Mahindra Prime lends at 12.5-15 percent for used cars.

Bali says that with high end cards making space in the used car market, interest of financiers has increased since the ticket size is large.

Subhasri Sriram, executive director at Shriram City Union Finance says, "Traditionally, this business has been controlled by brokers and intermediaries. Customers have never had access to finance directly from the lenders. There has been over-dependence on third party sales/ marketing agents who have vested interest in sale of pre-owned cars without considering the interest of the financier. This has left the financiers with poor quality assets and have had limited access to customers post lending.

HDFC bank as also reduced rates for the used car segment. Ashok Khanna, executive Vice-president and business head for auto loans, pointed out that the bank had slashed rates from 18 percent to 16 percent and in case of Maruti True Value and Honda Terrace, as low as 14 percent. "We have made an exception for these two players as we are assured of a good-quality customer base from them." said Khanna However, not all banks are reducing rates yet.