Car Financing Beginning to Slow Down

After hitting a record high, automobile financing in Pakistan is beginning to slow down due to rising car prices, contracting purchasing power of consumers and discouraging auto finance policies introduced by the State Bank to mitigate the swelling trade deficit.

While auto financing ticked up during November 2021, at Rs 349 billion which was just 1% higher than the October 2021 according to the State Bank of Pakistan’s data, the overall credit disbursed to consumers for the purchase of vehicles registered a slowdown for the first time in the year. According to analysts, the slowdown can be attributed mainly to the amendments made by the State Bank in the prudential regulations for auto financing, as per which:

  • Required down payment has been increased from 15% to 30%.
  • Maximum tenure of auto financing has been reduced from 7 years to 5 years.
  • Maxi­mum debt-burden ratio, allowed to a borrower, has been decreased from 50 to 40%.
  • Auto financing limits availed by one person from all banks in aggregate, will not exceed Rs 30 lac at any point in time.
  • Financing for imported vehicles has been completely prohibited regardless of engine capacity.

Related: Auto Sales Trend Renders Widening Economic Divide in Pakistan

However these revisions are not applicable to the locally manufactured cars below 1,000cc engine capacities and domestically manufactured electric vehicles as the government wants to protect consumers of the lower and middle-income categories and promote the use of clean energy.

Due to these stiff regulations, the number of (local assembled) cars sold in Pakistan fell by 11% month-on-month to 18,714 units in November 2021, according to data released by the Pakistan Automotive Manufacturers Association (PAMA) earlier this month.

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