Rev It Up: The Surge in Luxury Car Financing in India

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As India’s luxury car market experiences rapid growth, so does the demand for financing options to facilitate these high-end purchases. Banks, including HDFC Bank, ICICI Bank, and non-bank lenders, are witnessing a sharp increase in luxury car financing, reflecting changing consumer behaviour and increasing aspirations among Indians.

With outstanding bank loans for personal vehicles reaching ₹5.8 lakh crore, the luxury car financing segment is emerging as a significant contributor to lenders’ car loan portfolios. The shift in consumer behaviour, especially among the affluent and higher-middle-class individuals, is evident post-COVID, with more people opting for luxury vehicles financed through loans.

Younger Indians with rising income levels are keen on owning the latest models from global luxury car makers like Lexus, BMW, Mercedes-Benz, and Audi. Aspirations to own luxury vehicles, coupled with the availability of attractive loan options, are driving this trend. On average, 60-73% of the cost of luxury vehicles is funded through loans, with amounts ranging from ₹40 lakh to ₹73 lakh.

Ravi Bhatia, President of Jato Dynamics, attributes this surge to changing lifestyle preferences, particularly among the younger affluent population. Shahrukh Todiwala from Kotak Mahindra Prime notes the increasing demand for luxury cars, especially from tier-2 cities, fueled by younger professionals with higher disposable incomes.

Bankers emphasise that luxury car financing tends to have lower delinquency rates compared to entry-level and mid-size segments due to higher affordability levels among buyers. Madan Sabnavis, Chief Economist at Bank of Baroda, highlights the Veblen effect, where demand increases with price, making luxury cars a status symbol for affluent individuals.

Captive financing companies like Mercedes-Benz’s subsidiary, MB Financial Services, are also witnessing significant growth in loan books. Santosh Iyer, Managing Director of Mercedes-Benz India, notes a 50% increase in the average loan size over the past five years, reflecting the trend of customers upgrading to higher segments within the brand.