NBFCs fuel used car financing boom in rural and semi-urban India

Non-Banking Financial Companies (NBFCs) are driving a major shift in India's auto market by extending credit to semi-urban and rural borrowers. These areas were previously underserved by traditional banks. The Indian automotive market is moving away from a focus on new vehicle sales. Instead, it is seeing rapid growth in the pre-owned vehicle segment, fueled by easy access to credit.

Key Highlights

• NBFCs lead growth in used car financing in rural and semi-urban India
• The used-car financing segment grew at 34 percent CAGR from FY20 to FY25 to Rs 1,10,000 crore
• NBFCs hold 66 percent market share in two-wheeler financing and 58.70 percent in commercial vehicles
• Rural India receives only 8 percent of banking credit despite contributing 47 percent of GDP
• Auto loan GNPA declined from 6.6 percent in FY22 to 3.7 percent in FY25

According to a CRISIL report from April 2026, NBFCs are leading this financing transformation. They have unlocked demand in regions that banks often overlook. The used-car financing segment has become the fastest-growing area. It recorded a 34% compound annual growth rate (CAGR) between FY20 and FY25, reaching Rs 1,10,000 crore. This growth far exceeds that of other vehicle categories. It shows that more consumers now see owning a four-wheeler as an attainable goal, not just a luxury.

NBFCs' Expanding Market Influence

NBFCs provide nearly 11% of all credit in the auto sector each year. The main beneficiaries are households earning between Rs 2 lakh and Rs 10 lakh annually. This group, known as "Middle India," is expected to reach 181 million households by FY30. For many in semi-urban and rural areas, NBFC financing allows them to buy pre-owned cars as their first four-wheeler, often skipping two-wheelers entirely.

NBFCs hold a dominant 66% market share in two-wheeler financing. This segment grew at a 17.70% CAGR from FY20 to FY25, reaching Rs 1,70,000 crore. In commercial vehicles, which make up about 58.70% of NBFCs' total auto portfolio, lending grew at a 13.70% CAGR to Rs 5,70,000 crore in FY25. NBFCs have achieved this by reaching deep into rural and semi-urban markets, where banks have been more conservative.

Credit Access and Market Dynamics

There is a clear gap in credit delivery. Rural India generates about 47% of the national GDP but receives only 8% of total banking credit. Banks usually focus on salaried borrowers in cities to protect asset quality. NBFCs fill the gap by using specialized underwriting and a mix of physical and digital presence. They are flexible in assessing borrowers with limited formal credit histories.

Lower interest rates have also boosted auto lending. In 2025, the Reserve Bank of India cut the repo rate by 125 basis points, reducing it to 5.25% by December. This made borrowing cheaper, lowering EMIs and making loans more affordable. CRISIL projects 18–19% retail credit growth in FY26, with auto loans as a key driver.

Asset Quality and Future Outlook

As NBFCs expand into new regions and riskier segments, asset quality metrics have normalized. The auto loan segment saw Gross Non-Performing Assets (GNPA) drop from 6.6% in FY22 to 3.7% in FY25. It is expected to remain between 3.8% and 4.2% in FY26. Auto loans continue to make up 11% of NBFC credit. The formalization of the economy and NBFCs' reach in "Middle India" are central to India's automotive market reset.

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CarBike 360 Says

NBFCs are playing a pivotal role in democratizing car ownership by bridging the credit gap in underserved markets. With faster approvals, flexible repayment options, and deeper regional reach, they are unlocking strong demand for used cars. As financial inclusion improves, NBFC-led financing is set to remain a key growth driver for India’s evolving automotive landscape.