Auto finance for used car sales in India is set to receive a big boost, as the State Bank of India - Maruti Udyog combine is planning to finance used car sales at the same interest rates as applicable on new car purchases.

Currently, most auto finance companies charge at least 2 percentage points higher interest on used cars than on new car purchases.

At a press conference on Wednesday, senior Maruti executives said, "We will offer used car finance also at interest rates of 10.5-11.25 per cent, depending on the period. This will happen in the second phase of our rollout, in about six months' time. Details of how the validation will be done are currently being worked out."

An SBI official said, "The interest rates on used car finance will be the same as new car finance charges. However, our margins on used cars will be higher, as the risks are also higher."

Maruti and SBI on Wednesday announced a tie-up to provide the most competitive finance rates on car purchases.

This is expected to result in a significant improvement in availability of finance on Maruti's products, as the company will now leverage on SBI's immense network of around 14,000 branches across India.

Many sections of the population, which hitherto could not take car loans from the organised finance industry due to the absence of required papers, can now avail finance to make car purchases.

Maruti already has a tie-up with eight leading non-banking finance companies to provide auto finance to its customers through its subsidiary, Maruti Finance.

However, Maruti executives are confident that the tie-up with SBI will not affect the performance of Maruti Finance.

"The tie-up with Maruti will allow us to cater to customers even in the remote corners of India. As the NBFCs have a strong presence in the urban market, they should still get a fair chunk of business," they said.

SBI has announced that it has budgeted almost Rs 500 crore (Rs 5 billion) to finance Maruti car purchases through this venture.