Used-car financing is emerging as a mainstream credit segment, while commercial vehicles and premium two-wheelers drive fresh growth across India’s expanding mobility economy

India’s vehicle-finance market is witnessing a structural shift, with credit demand spreading beyond traditional urban centres and borrowers increasingly opting for higher-value vehicles. Data from CRIF High Mark shows that used-car financing has emerged as one of the fastest-growing segments, while commercial vehicle loans and two-wheeler finance continue to expand their footprint.

The trend reflects rising formalisation of vehicle credit, stronger mobility demand in smaller cities and growing access to organised lending. However, increasing ticket sizes and multiple loans among some borrowers also mean that lenders will need to maintain strict underwriting standards.

Used-car finance becomes a mainstream credit segment

Used-car financing has recorded the fastest growth among major vehicle-finance categories. The segment posted a 26.2 per cent five-year CAGR between June 2021 and June 2026, while its borrower base expanded 2.4 times during the same period.

The growth indicates that financing for pre-owned vehicles is no longer restricted to a relatively small customer segment. Increasing vehicle prices, improved availability of organised used-car platforms and demand for affordable personal mobility are helping bring more consumers into formal used-car financing.

For lenders, the segment offers significant room for expansion, particularly in Tier-2, Tier-3 and smaller markets.

Commercial vehicle loans remain a key growth engine

Commercial vehicle financing has also expanded strongly, recording a 20.1 per cent CAGR between June 2021 and June 2026.

Its share of retail credit increased to 4.2 per cent from 4 per cent over the period. The growth has been supported by demand for vehicles used in transportation, logistics, construction and last-mile delivery.

However, the segment also carries comparatively higher early-stage delinquency, making borrower cash flows and repayment capacity important factors for lenders.

Premiumisation is reshaping auto finance

India’s vehicle-finance market is not only expanding in volume but also moving towards higher-value loans.

The average exposure per auto-loan borrower increased at a 9.2 per cent CAGR between June 2021 and June 2026. The average auto-loan ticket size has now reached ₹8.6 lakh.

Meanwhile, the proportion of auto loans above ₹15 lakh increased from 27.6 per cent in Q1 FY25 to 29.8 per cent in Q1 FY27.

This points towards growing consumer preference for premium vehicles and greater willingness to finance larger purchases through formal credit.

Two-wheelers remain the gateway to formal credit

Two-wheeler financing continues to have the largest borrower base among vehicle-finance categories.

The number of two-wheeler borrowers increased from around 2.3 crore in June 2021 to 3.6 crore in June 2026. Around 80 per cent of borrowers were new-to-product customers, underlining the importance of two-wheeler loans as an entry point into the formal credit system.

The segment is also undergoing premiumisation. The share of premium and electric two-wheelers priced above ₹1 lakh rose from 38 per cent to 43 per cent.

The trend suggests that consumers are gradually moving towards higher-value and technology-driven mobility products.

Credit demand spreads beyond major cities

One of the most important developments is the geographical expansion of vehicle finance.

According to CRIF High Mark, BT100 locations accounted for 53 per cent of two-wheeler loan originations and 45 per cent of commercial vehicle loan originations.

This indicates that lenders are increasingly reaching smaller cities and towns, where improving connectivity, rising incomes and growing mobility requirements are creating fresh demand for formal credit.

The expansion could provide a long-term growth opportunity for banks, NBFCs and specialised vehicle-finance companies with strong distribution networks.

Borrower leverage needs monitoring

The rapid growth in vehicle credit is accompanied by some cautionary signals.

In commercial vehicle financing, the proportion of borrowers with two or more active loans increased from 15.7 per cent in June 2021 to 19.9 per cent in June 2026.

Multiple borrowing does not necessarily indicate stress, but it increases the importance of monitoring repayment capacity, income stability and overall borrower indebtedness.

Lenders may therefore need to balance growth ambitions with tighter risk assessment, particularly in segments where cash flows can be sensitive to economic conditions.

Asset quality shows signs of stabilisation

Despite the increase in credit activity, the overall asset-quality picture remains relatively stable.

Later-stage delinquency has improved across vehicle-finance categories, suggesting that lenders have seen some stabilisation in stressed accounts. Auto loans currently demonstrate the strongest asset-quality profile.

Commercial vehicle finance, however, continues to show relatively higher early-stage delinquency and could remain an area requiring closer monitoring.

What borrowers should consider before taking a vehicle loan

The growth in vehicle financing also highlights the importance of responsible borrowing.

A lower EMI does not necessarily translate into a cheaper loan. Extending the repayment tenure can reduce the monthly burden but substantially increase the total interest paid over the loan period.

Borrowers should therefore compare the overall cost of financing rather than focusing only on the advertised EMI. The vehicle’s age, remaining useful life, insurance expenses, maintenance costs, interest rate and total repayment amount should all be considered before finalising the loan.

Key trends to watch

The vehicle-finance market is increasingly being shaped by four major trends:

• Used-car financing: Fastest-growing major segment, with a 26.2 per cent five-year CAGR.

• Commercial vehicles: 20.1 per cent CAGR and rising importance in retail credit.

• Premiumisation: Auto loans above ₹15 lakh increased to 29.8 per cent of the segment.

• Rural and smaller-city penetration: BT100 locations account for a significant share of two-wheeler and commercial vehicle originations.

Market Outlook

India’s vehicle-finance industry appears positioned for sustained expansion as vehicle ownership rises, formal credit penetration increases and demand spreads beyond major cities.

The strongest structural opportunity could lie in used-car financing, two-wheelers, commercial mobility and premium vehicles. For lenders, however, growth will need to be accompanied by disciplined underwriting and close monitoring of multiple borrowing and delinquency trends.

For investors tracking banks and NBFCs, companies that combine strong credit quality, efficient collections, diversified portfolios and deeper penetration in emerging markets could be better placed to benefit from the next phase of India’s mobility-credit cycle.