Private Banks Now Offer 100 Percent Car Financing


MUMBAI: Good news for carmakers and customers! Now private banks are offering 100 percent financing for cars. It seems that the demand for loans from corporate has been decreasing, hence now, some of the private banks are offering 100 percent financing for cars, reports Economic Times. This new step taken by the banks might help in the growth of the car markets.  Many of the private banks like Axis Bank and HDFC are offering 100 percent financing for cars while Kotak Mahindra is giving 95 percent finance for cars. Apart from these there are a few banks that fund the car insurance cost too.

100 percent car loan offer might be excellent news for the consumers and carmakers but this news might lead to a risky business for banks. Ideally, the loan outstanding should be less than the value of the asset for which the loan is given. But this is not what is happening here. "This is the same madness we had seen in the home loan market where banks gave 100% loans to home borrowers. They also gave additional funding for furnishing homes," said Romesh Sobti, managing director and CEO at IndusInd Bank. "This lead to the subprime crisis, when property prices crashed. In the auto loan market also, 100 percent financing could lead to a bubble," he said. IndusInd Bank offers up to 75percent financing for cars. "The loan-to-value ratio should be such that the borrower should have put in some equity," Sobti said.

Private Banks are undergoing cut throat competition with some of the captive finance companies to get business. These finance companies seem to step ahead than these banks as they are offering freebies along with 100 percent financing of cars.