Consumer finance:

Consumer finance includes all asset based financing plans offered to

individuals to help them acquire durable consumer goods. In a consumer finance transaction the
individual/consumer/buyer pays a part of the cash purchase price at the time of the delivery of
the asset and pays the balance with interest over a specified period of time. The consumer
finance has emerged as an important asset based financial service in India. The main providers of
consumer finance are foreign/multinational banks and finance companies and cover items such
as cars, scooters, VCRs, TVs, refrigerators, washing machines, home appliances, personal
computers, cooking ranges, food processors etc. there is how no specific legislation to regulate
consumer credit in India.

Changing consumer behavior:

The Indian consumer is fast changing his habits, borrowing money to

buy the products he wants, not content with buying what he can afford. The resultant consumer
boom is what market strategists explain as the key to the success of the Indian consumer finance
market. Consumer finance today is a win-win system in which everyone stands to gain. For the
Indian consumer, it is an opportunity to upgrade his standard of living right now instead of
waiting for years for his savings to accumulate. For manufacturers, it stimulates demand and
lowers inventory. For middlemen, it's a sales boosting device. For players of consumer finance,
it's a means of profit generation. The basic underpinning of consumer financing is that the
consumers' present spending habits tend to be geared to expectations of future income. They are
losing their fear of borrowing, riding surfboards of consumer finance. Along with buying a
home, consumers prefer CF to buy home appliances and vehicles, opting for CF based on the rate
of interest, administrative fee, processing fee, commitment charges, pre-payment penalty, and
types of facilities, standard and kind of services mix and sundry terms and conditions. These are
the members of a growing breed of normally conservative middle-class Indians who are
shedding their inhibitions about opting for CF loans despite the high interest cost.

Consumer preference:

Indian consumers identify ease and speed of the loan application and
approval process, as well as flexibility of evaluation procedures as the key drivers of financing
satisfaction. Customers who obtained their loans from a nationalized bank are relatively more
satisfied than those choosing a non-banking finance company (NBFC) or a foreign bank. Low
interest rates and the reputation of the finance company are among the key reasons for customers
who opted either for an NBFC or a foreign bank. In comparison, past experience and
personalized service are the main reasons indicated by those opting for a nationalized bank.
Furthermore, more than 50 percent of NBFC and foreign bank customers obtained their
financing at an automobile dealer or through a direct selling agent of the finance provider. In
contrast, more than 90 percent of nationalized bank customers obtained their financing directly
through the bank. The car finance market has reached a new level of maturity, so much so that
the car-maker, the automobile dealer and the financier now work together to provide better
features and funding options for the buyer. Depending on the manufacturer, tenure of the loan
and credit history of the car buyer, interest rates, on a reducing balance basis, now hover in the
10-13.5 per cent range for new cars compared to 13-16.5 per cent till early last year. There is an
increased preference for financing car purchases through loans