Demystifying the EV Lending Process

May 22, 2023 | Marie McNamara, RMI

The market for electric vehicles (EVs) in India is growing at a rapid pace, bringing about a revolution in the mobility sector in the country. To fuel this momentum, access to affordable financing options will be vital in ensuring all stakeholders, including small and medium-sized enterprises (SMEs), rickshaw drivers, and everyday citizens, are able to procure EVs. As India’s market stands today, interest rates for electric two- and three-wheelers hover around 25 per cent, whereas the interest rates for fossil fuel vehicles are around 12 per cent.

Over the past year, efforts have been made to increase access to EV financing and reduce high-interest rates. The World Bank has provided US$250 million to the Small Industries Development Bank of India (SIDBI) to design and launch the EV Risk Sharing Program, which provides concessional loans to the ecosystem and a partial risk-sharing guarantee to spur the adoption of electric two- and three-wheelers. To further complement these endeavours, the Shoonya – Zero Pollution Mobility campaign has launched a financing toolkit to educate EV customers about EV financing.

Shoonya is a consumer awareness campaign launched by NITI Aayog and RMI in partnership with over 140 corporations and aims to promote use of EVs for deliveries and ride hailing. The Shoonya financing tool helps users interpret loan characteristics and the lending process to help SMEs and citizens better access EV financing as finding a financial institution with lending products catered to the EV segment can be challenging given the convoluted nature of the vehicle lending. The Shoonya financing tool provides relevant information on loan application processes, standard terms and conditions, and a list of banks and NBFCs offering EV loans.

The tool walks users through a typical EV loan application process, providing context on EV loan characteristics. It details how longer loan terms, lower interest rates, and a higher loan-to-value ratio can help reduce average monthly loan payments and make debt more affordable. The tool lays out the overarching characteristics of EV loans so borrowers can expand their knowledge base and advocate for an EV lending product that best suits their needs. Additionally, it provides a compilation of financing institutions with specific EV lending products, which aims to save users time and streamline the due- diligence process when searching for an EV loan. Lastly, the Shoonya finance tool outlines key considerations when applying for an EV loan, such as what to look for when evaluating loan terms and conditions and why it is best to take a vehicle loan as opposed to a personal loan to reduce the borrower’s liability.

Going ahead, Shoonya, as a coalition of companies , will continue to facilitate dialogue and share relevant information to build trust within the EV lending ecosystem. Shoonya will engage with financiers, OEMs, fleet operators, and e-commerce companies to identify new mechanisms of mobilising EV finance and provide support to the ecosystem. Such support will include assistance to the SIDBI- World Bank EV Risk Sharing Program. The financing tool and Shoonya’s ongoing efforts to connect and build trust between ecosystem players will continue to play a key role catalysing EV finance.

The author thanks Riya Saxena of RMI India for her valuable insights.