Indonesia Used Car Financing Market - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027)
The Indonesia Used Car Financing Market is valued at USD 33.78 Billion in 2021 and is expected to reach USD 46.75 Billion by 2027 registering a CAGR of about 5.78% during the forecast period, 2022 – 2027.
The used car financing market saw a slight dip due to the COVID-19 outbreak and subsequent lockdowns. Though the slump was not as significant when compared to the new car sales due to the buyer's reluctance and lower disposable cash in hand for new vehicle purchases. But now, as life comes to normalcy, the Indonesian used car financing market is expected to gain back its pace in the following years. The pandemic made owning a car an unavoidable aspect of an individual's life as traveling via public transport can be risky. People who preferred public transport during the pre-Covid times are now the potential customers of the used cars market.
Over the long term, due to the increasing digitization and the ability of companies to provide immersive purchase experiences remotely, Indonesia's Used Car Market is expected to witness significant growth. Furthermore, the rise in the value-added service offering and the variety of finance providers offering credit for used cars will also contribute to the growth of the used car market in the region. However, the higher interest rates might turn around some potential customers hampering the market’s growth.
Another major factor aiding the market growth is emergence of various Non-Banking Finance Companies offering low-interest rate compared to banks and flexible installment options.
Key Market TrendsUsed Car Financing Gaining Momentum in IndonesiaThe Indonesian vehicle market has a few characteristics that make it a suitable place to buy secondhand cars. To begin with, car ownership in Indonesia is quite low, particularly when compared to other ASEAN nations. With a population of nearly 250 million people, the country has just roughly 15.4 million registered automobiles. Motorcycles continue to be a popular means of transport.
Although new car sales are declining in Indonesia, the used car market is booming and the numbers are rapidly increasing. Consumers in the country appear to prefer used cars not only because they are less expensive, but also because many of the new vehicles on the market are still relatively new – between three and seven years old – and in good shape, making them highly feasible possibilities to explore.
In Indonesia, OEM-certified used cars are getting traction among consumers. Different dealer channels are emerging in Indonesia and consumers prefer them in the view of greater quality, longer-term assurance, and better sales reliability.
There is no established national association in place in Indonesia. Dealer clusters form their own community-based organizations to ensure that pricing are comparable within the cluster and to hold gatherings to boost support for the group.
By working with multi- and auto-financing businesses, independent used car dealers reduce their exposure to buyers' financial concerns. Cars older than ten years are not eligible for financing because of their reduced lifespan, increased risk of damage, and diminished value. When compared to new car purchases, there is a higher proportion of cash payment because the price can be 20-30% lower.
Indonesia being an emerging economy with lowered GDP growth rate, people have low purchasing power. Used car financing helps people to own a personal car at much lowered price at affordable EMI installments. This reduces burden of one-time payment just with 30% initial down payment with Indonesia regulated banks.
Following are common contractual terms and condition for used car financing:
Indonesia’s financing firms shall not offer any warranty on auto parts, whereas partnered insurance companies will only insure body repair and stolen car under its typical insurance cover.
In Indonesia, we have several multi-sized finance firms maintaining strong strategy in order to gauze upper edge.
Indonesia has more than 200 multi-finance companies, with auto and bank-owned companies continuing to eat into market share. Bank-owned businesses can offer more competitive lending rates because of their parents' support, whereas auto-owned businesses can rely on strong dealer relationships (more flexible financing packages).
Banks are Expected to Dominate the MarketBanks and financial organizations charge greater interest rates for used cars than they do for new cars. Used car borrowing rates are higher than new car interest rates because used autos have a larger danger of being damaged than new cars.
Despite having a high loan rate, secondhand automobile payments are significantly lower than new car installments. The reason for this is that used car costs are typically low, resulting in lower monthly payments.
Banks dominate the used car market because they are well-regulated and provide a secure source of financing. Bank Central Asia (BCA), Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI), CIMB, and Bank Danamon Indonesia are the leading companies in the market.
Most banks provide loans for the purchase of pre-owned/used vehicles in Indonesia. The terms, conditions, and charges differ from one lender to the next. Select lenders may offer customers up to 100% financing, but the majority will only offer up to 80%.
Typical contract parameters include:
Since the loan amount for used car loans is also determined by the lender's valuation of the used car, the loan amount may be significantly lower than the price quoted by the seller. Furthermore, while used car loan terms can be as long as five years, the final term will be determined by the age of the vehicle.
Many private banks in the country are partnering used car marketplaces to offer auto-financing services by leveraging platform’s used car sales. For instance,
The market's competition is extremely fragmented. Key players include ACC Finance, BFI Finance, Oto Multiartha, MPM Finance, Batavia Prosperindo, Toyota Astra Finance (Toyota and Daihatsu) Dipo Star Finance (Mitsubishi), Bussan Auto Finance (Yamaha), Suzuki Auto Finance (Suzuki), and others
Banks, captives, and multi-finance companies are the major lending institution types in the market; they have a fragmented proportion of the lending space for cars, and banks also have a fragmented share of the lending area for used cars. Several fin-tech businesses have also emerged in the country's financial industry, posing a threat to traditional finance firms and banks. These startups have created tools to help with the banking sector's digitalization. This includes digital payments, online lending, online aggregation, and remote banking capabilities, which simplified the client loan procedure and facilitated the country's vehicle finance sector.
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