Car loan rates go up; sales to be impacted

New Delhi: Rising interest rates on car loans may spoil the party for the car industry.

Already this year some finance firms have increased interest rates 4 times, pushing them up by about 3 per cent.

From 9.75 per cent in January, car loans have zoomed to about 12.5 per cent on a reducing balance.

The last three months has been an active period for interest rates in car loans.

For example, if a customer paid Rs 15,100 for a 3 year loan of Rs 5 lakh to buy a car like the Honda City, a new customer today will have to shell out Rs 600 more per month for the same loan amount and the same tenure.

Industry leader Maruti says rising rates have boosted the cost of car ownership and dulled the sheen created by an excise duty cut on small cars given in the Budget.

MD at Maruti Udyog, Jagdish Khattar says, "On February 28 we were excited, but today we are subdued because interest rates have gone up."

With no sign of interest rates softening, car finance, which had triggered the industry's healthy growth in the past few years, may not be very supportive now.

Last year the industry posted a modest 7.5 per cent growth and it will need a prop to push growth.