Auto financing in Pakistan has been on the rise for the past 18 months. Over the last year, car finance started at Rs. 262.5 billion in January 2021 and built up to Rs. 354 billion in December 2021.
For the first time after a long time, the financing dropped down by 0.6% to Rs. 352 billion in January 2022. Compared to the numbers of January 2021, the financing was still 35% higher on a year-on-year basis.
The 18 month long upward streak got a hit due to the higher interest rate of 9.75% by the State Bank of Pakistan (SBP). The authorities also tightened the auto finance regulations to reduce the import bill and control the country’s account deficit.
Auto Finance Policies
The biggest factor behind the slowdown in car finance is the new auto finance regulations. The SBP has completely banned the auto finance facility for imported cars and revised the policies for financing 1000cc and above cars.
- The maximum loan tenure was reduced from seven years to five years.
- The maximum personal loan tenure reduced from five years to four years.
- The minimum down payment increased from 15% to 30%.
- The maximum debt burden ratio reduced from 50% to 40%.
- The interest rate increased from 7% to 9.75%.
- Rs. 3 million auto financing limit for a person from all banks (in aggregate).
Increasing Car Prices
Car sales overall have slowed down because of the sky-high prices. The first price hike of 2022 took cars way out of the common man’s reach, and that’s another reason behind the drop in car finance.
With the increasing car prices and new finance regulations, financing cars is becoming tougher and more challenging for consumers. There’s no way the companies can justify the rising car prices. But the authorities have tightened the car finance regulations for a reason: to cool down the overheated economy, and we think that’s fair.
