The Philippines used car finance market is witnessing a change in dynamics, driven by consumer preferences and innovative financial practices. As the country’s workforce increases, the demand for cheaper, cost-effective transportation methods rises alongside.

As a result, in 2023, used car sales surpassed over 382,200 units nationally.  This article will discuss how businesses and financial institutions are reshaping strategies to utilize the opportunities offered by the growing market.

Tracking the Footsteps of the Market

·       In 2023, the Philippines used car finance market saw loan disbursement worth PHP 78 billion for financing 156,726 pre-owned vehicles in the Philippines. Similarly, due to the affordability and financial flexibility offered by lenders, the demand for used car loans has grown at a significant rate.

·        Furthermore, the largest share of loans disbursed in the market was non-banking financial companies (NBFCs). Which dominated the landscape, holding ~70% of the total loans disbursed in 2023, while banks and associated captive lenders continue to expand their presence.

·       Digital loaning platforms turned out to be a crucial helping hand amidst the crisis. With a 73% internet penetration rate in the Philippines and approximately 86.98 million internet users, online marketplaces and lenders account for 85% of loan approvals. Consumers favouring efficiency and convenience in the loan process rely heavily on these digital platforms to compare loans and track approvals.

Strategies that Transformed the Market

• Rise of Flexible Financing Options: Lenders are providing tailored financing solutions to suit consumer needs, offering tenures as long as 48 months and requiring down payments as low as 20-30%. Similarly, Interest rates remain varied, ranging from 6% to 37%, depending on the buyer's creditworthiness and desired vehicle type.
• These flexible ways of approach make purchasing used vehicles accessible to the middle-income class, who already constitute 40% of the population.
• Versatility of Consumer Demographics: Middle-class professionals as well as young buyers, aged 21-40, are the main groups that increase the demand for used cars. These groups combined are expected to comprise 64 % of the repurchasing segment by 2028 and prefer the process to be backed by financing solutions that offer speed and transparency.

The Road Ahead

• Hybrid and Electronic Vehicles - the new heroes: Like fuel to the fire, rising sustainability awareness significantly boosts the traction for environmentally friendly vehicles. As a result, hybrid and electric cars are expected to see a significantly higher re-adoption rate in the coming years. Captive lenders of automotive brands are likely to cause this shift whilst including EV-specific benefits.
• Digital Advancements paving the way: Automation is set to redefine the lending process. Advanced technologies like AI-driven credit scoring, blockchain-based documentation, and online payment methods will enhance efficiency while reducing the approval time. By the year 2028, online platforms are expected to significantly influence financing, making the loan acquisition process seamless for potential buyers.
• Re-igniting the new car production market: An improvement in the shortage of semiconductors is highly anticipated to stabilize the production of new cars, which will indirectly fuel the used car market in the Philippines. As new cars transition into the pre-owned category, financing needs will inevitably rise, eventually supporting the market's expansion.

The Present Shaping the Future

The increasing dominance of digital platforms and NBFCs set the stage for an automated, consumer-oriented path for the auto finance industry in the coming years. Recent changes in consumer behaviours, such as preferring flexible financing and digital accessibility, directly influence advancements in hybrid vehicle financing and AI-powered loaning processes.

The growing middle class continues to act as the backbone of the market, fuelling demand for affordable and flexible financing. Meanwhile, the adoption of new technologies by lenders and organized players will help meet evolving consumer expectations, ensuring a competitive edge in this rapidly changing sector.