Auto Loans in Pakistan Hit Rs 315 Billion as Cars Become More Affordable

Pakistan’s car financing market is booming. By October 2025, the total value of outstanding car loans reached around Rs 315 billion, up from Rs 305 billion in September. Lower interest rates, easier loan terms, and strong demand for affordable vehicles are driving this growth.

For many Pakistanis, owning a car is now within reach thanks to lower loan rates and more flexible financing options.

Why Auto Loans Are Rising

Several factors are driving this surge:

1. Sharp Interest Rate Cuts
   The State Bank of Pakistan (SBP) slashed its policy rate from 22% to 11% in just five months, dramatically lowering the cost of borrowing. As a result, banks can offer loans at rates as low as 10%, particularly for small cars under 1,000cc and second-hand imported vehicles.
2. More Flexible Loan Terms
   Shorter loan tenures — typically around five years for small cars — and lower down payments of just 30% have made it easier for buyers to qualify. Compared to previous years, consumers can now get a car with smaller monthly installments, making ownership much more manageable.
3. High Demand for Affordable Cars
   Compact cars and small-engine vehicles are increasingly popular. Their lower purchase price, combined with accessible financing, makes them ideal for middle-income buyers navigating Pakistan’s current economic climate.
4. Competitive Financing Packages
   With banks and auto dealers competing for customers, loan packages have become more attractive than ever. From smaller down payments to installment plans, buyers have more options to suit their budgets.

Challenges Facing the Market

Despite the growth, some hurdles could affect the auto financing sector:

• Loan Caps for High-End Cars: The government has capped car loans at Rs 3 million, limiting access to luxury vehicles. Most financing is concentrated on smaller, affordable cars.
• Policy Uncertainty: The auto sector is watching the upcoming 2026–31 auto policy, which could change rules around imports, local manufacturing incentives, and electric vehicles. Unclear policies may slow investment or financing options.
• Rising Prices: Even with lower loan rates, the cost of some vehicles has increased, putting pressure on buyers.
• Limited EV Financing: While electric vehicles (EVs) are gaining attention, financing packages for EVs are not yet widespread, which could slow adoption.

The Outlook for Auto Financing

If interest rates remain low, the market is expected to continue its upward trend, especially for small, affordable cars. Analysts also predict that EV financing could be a key growth area in the next few years, provided banks offer competitive loan packages for electric models.

The success of Pakistan’s auto financing sector will depend on:

• Clear government policies around imports and local manufacturing.
• Continued low interest rates to make borrowing attractive.
• Consumer confidence in their ability to repay loans.

What This Means for Buyers

For everyday buyers, this is good news: car ownership is more affordable than ever. Compact cars are within reach for middle-income families, and loans are easier to qualify for. However, if you’re looking for a luxury vehicle or an EV, options remain limited, and you may face stricter financing conditions.

Bottom Line

Cheaper loans and flexible financing are opening the door for more Pakistanis to own cars. While small, affordable vehicles are driving the market, the next step will be expanding opportunities for luxury cars and electric vehicles. How banks, dealers, and government policies respond will determine whether this growth is sustainable over the long term.