After months of growth, the car finance segment is now slowing down. That’s because financing a car has become challenging for people. On one hand, cars are getting more and more expensive. On the other, finance policies are becoming harder to follow, making cars out of the commoner’s reach.
Auto Finance in 2021
Auto finance numbers have been growing all year steadily. In July 2021, car financing recorded an all-time high of Rs. 314 billion. The numbers rose to Rs. 326 billion in August, Rs. 338 billion in September, Rs. 346 billion in October, and Rs. 349 billion in November.
November had the slowest growth of only 1%. That’s the lowest month-on-month increase since July 2020. Here’s why.
Increasing Car Prices
Car sales overall are dropping because of the sky-high prices. We have done a detailed comparison of car sales in January and December 2021, showing how the prices have dramatically increased in one year.
Auto Finance Policies
The other factor behind the slowdown in car finance is the new auto finance regulations. The State Bank of Pakistan (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 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).
The locally manufactured below 1000cc cars and electric vehicles (EVs) are free of these restrictions. SBP has tightened the auto finance regulations to reduce the import bill. But the restrictions have made it hard for people to buy and own cars.
