Vehicle finance plays a critical role in enabling individuals and businesses to own vehicles through structured credit facilities. But have you ever wondered how lenders assess risk before approving a vehicle loan? Let’s break it down!
The Vehicle Credit Process:
1️⃣ Loan Application – Borrowers submit applications with KYC, income proof, and vehicle details.
2️⃣ Credit Evaluation – Lenders assess repayment capacity, stability, CIBIL score, and past loan behavior.
3️⃣ Field Investigation (FI) – Physical verification of residence, business, and references.
4️⃣ Loan Sanctioning – Based on risk assessment, FOIR (Fixed Obligations to Income Ratio), and LTV (Loan-to-Value) ratio.
5️⃣ Disbursement – Loan is disbursed directly to the dealer after documentation and hypothecation.
6️⃣ Collection & Monitoring – EMI tracking and follow-ups to ensure repayment discipline.
Who Are the Borrowers?
✅ FTU (First-Time User):
➡️ Buying a vehicle for the first time.
➡️ Might have an existing credit history from other loans.
➡️ Risk depends on income stability and past repayment behavior.
✅ FTB (First-Time Buyer):
➡️ First-time vehicle loan applicant with no prior credit history.
➡️ Considered a high-risk profile.
➡️ Lenders rely on income stability, banking transactions, and references for decision-making.
✅ TRP (Transporter Profile):
SRTO (Small Road Transport Operator): Owns 1-2 vehicles, often self-driven.
MRTO (Medium Road Transport Operator): Owns 3-10 vehicles, may have driver employees.
LRTO (Large Road Transport Operator): Fleet owners managing large-scale operations.
Key Assessment Factors: Route permits, freight history, business stability, and past repayment records.
Key Credit Factors in Vehicle Finance:
LTV (Loan-to-Value) Ratio – % of the vehicle cost financed by the lender (typically 70-90%).
FOIR (Fixed Obligations to Income Ratio) – Measures EMI burden against total income.
CIBIL Score & Repayment History – Determines a borrower’s creditworthiness.
Vehicle Type & Usage – New vs. used, passenger vs. commercial—each impacts risk.
Business Stability – Crucial for self-employed borrowers with cash flow-based income.
Leading vehicle finance lenders like Shriram Finance, Cholamandalam Finance, and others specialize in evaluating borrower profiles and asset utilization for loan approvals.
What are your thoughts on vehicle finance risk assessment?