Stuck in neutral: Loan rejections stall Thailand’s used car market

Thailand’s used car market is set to experience continued sluggish sales due to frequent loan rejections faced by prospective buyers, according to the Association of Used Cars.

Earlier forecasts by the association anticipated an improvement in used car sales in the latter half of 2024, driven by expectations that financial service providers would relax their lending criteria.

Nonetheless, financial institutions and banks remain stringent in approving loan applications due to high household debt levels, stated Association of Used Car President Vichai Suwanasilar.

This oversupply is compelling used car dealers to reduce their prices, adversely affecting their businesses, Vichai added.

Many consumers prefer purchasing used cars, assuming they would have an easier time securing loans compared to new vehicles. However, high household debt levels have become a significant barrier, he explained.

Despite the Bank of Thailand’s reports indicating a decline in household debt alongside economic growth, the debt level remains substantial. This situation has fueled caution among banks and financial service providers when granting auto loans, due to concerns about non-performing loans.

The central bank reported total household debt at 16.3 trillion baht in the second quarter of 2024, representing 89.8% of GDP, a slight decrease from 16.4 trillion or 90.8% of GDP in the first quarter.

However, the number of impounded cars is rising as owners struggle to repay their loans. The economy has yet to fully recover, and government stimulus measures have not significantly boosted economic conditions, according to the association.

Vichai expressed concern about the declining prices of electric vehicles, which has triggered a price war among some companies.

“This situation affects both the new and used car markets, causing potential buyers to delay purchases as they wait for prices to fall further.”

Vichai urges the government to request the central bank to ease its “responsible lending” campaign, which was introduced to address severe household debt issues. Responsible lending aims to improve the quality of household debt and reduce the debt ratio over the long term, reported Bangkok Post.

However, this campaign is making it more challenging to access auto loans, impacting both the new and used car markets, Vichai concluded.