Car Financing Costs will Haunt You

New car prices in Pakistan have gone past the level of sanity with prices being revised after a frequent interval of less than 3 months reflecting a huge disproportion in forex fluctuations versus the impact on per unit price for end users.

Honda Civic and Toyota Corolla which are known as ordinary cars for middle-class buyers around the world are reaching PKR 5 million to up to PKR 6.5 million whereas the flurry of expensive crossovers is well beyond that. Most of the new cars have already become more expensive than residential property and it just doesn’t make sense to spend such a huge amount of money only to buy a “car” which lacks quality & features when compared to the ones sold in other markets.

Related: Car Sales to Slow Down Due to Auto Financing Restrictions

A lot of people believe in these tougher economic times, car financing is the key to buying new cars. Yes, it certainly used to be this way, however with the sort of price tag new “locally assembled” cars currently bear, the estimated monthly installments (EMI) will be enough to boggle your mind. Keep in mind there were amendments made by the State Bank last year in the prudential regulations for auto financing, as per which:

  • The minimum required down payment has been increased from 15% to 30%.
  • The maximum tenure of auto financing has been reduced from 7 years to 5 years.
  • The 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.

civic RS 2

Based on the above, suppose someone is willing to buy a new Honda Civic RS via car financing, the minimum we would need to pay in terms of a 30% down payment will be PKR 19.5 lac and then will come the hefty monthly installments. In order to show you how tough the EMIs are, we have compiled below, a list of different locally assembled cars to reflect their EMI against a 30% down payment and a 5-years (60 months) payback period. Do note that the below-mentioned rates will vary depending on the bank you opt for & the markup applied. Have a look:

Model Price 30 % downpayment EMI
Honda Civic RS PKR 64.99 lac PKR 19.5 lac PKR 104,170
Honda City 1.2 PKR 32.49 lac PKR 9.74 lac PKR 52,150
City Aspire 1.5 CVT PKR 37.49 lac PKR 11.24 lac PKR 60,150
Toyota Yaris 1.3 PKR 31.09 lac PKR 9.32 lac PKR 49,800
Yaris Ativ X 1.5 PKR 34.99 lac PKR 10.49 lac PKR 56,250
Toyota Corolla Altis X 1.6 PKR 39.29 lac PKR 11.78 lac PKR 62,850
Corolla Altis Grande 1.8 PKR 46.89 PKR 14.06 lac PKR 75,300
Toyota Hilux Revo V PKR 88.39 lac PKR 25.1 lac PKR 141,800
Toyota Fortuner Diesel PKR 114.89 lac PKR 34.46 lac PKR 163,950
Kia Sorento 3.5 PKR 82.03 lac PKR 24.60 lac PKR 131,130
Kia Stonic EX+ PKR 44.5 lac PKR 13.35 lac PKR 71,200
Peugeot 2008 PKR 58.5 lac PKR 17.55 lac PKR 94,150
Hyundai Staria GLS PKR 92.99 lac PKR 27.89 lac PKR 149,600
Hyundai Tucson AWD PKR 62.99 lac PKR 18.89 lac PKR 101,200
Chery Tiggo 8 Pro PKR 65.99 lac PKR 19.79 lac PKR 105,750
Changan Alsvin PKR 29.39 lac PKR 8.81 lac PKR 47,200
Changan Karvaan Plus PKR 19.44 lac PKR 5.8 lac PKR 31,650
Suzuki Wagon R AGS PKR 21.58 lac PKR 6.47 lac PKR 34,450
Suzuki Cultus AGS PKR 24.22 lac PKR 7.46 lac PKR 39,100
Suzuki Alto PKR 17.47 lac PKR 4.34 lac PKR 27,900
Suzuki Swift DLX PKR 28.99 lac PKR 8.69 lac PKR 46,500
DFSK Glory 580 Pro PKR 50.40 lac PKR 15.12 lac PKR 80,950
Prince Pearl PKR 13.34 lac PKR 4.02 lac PKR 21,800

yaris rolla 2

The above table only shows the down payment and estimated monthly installments. Other costs such as registration, insurance, taxes, bank fees & processing charges, and of course the premium/ on-money will have to be added to the final cost a user will have to bear in order to bring a new car on the road.

Related: Buying a New Car isn’t Anyone’s Piece of Cake

Looking at the above figures, its hard to evaluate how a common man, say a salaried person, will be able to bear these costs and with such hefty EMIs, how can one be able to bear other costs including fuel & maintenance of the vehicle, not to mention the obvious expenses (education/ food/ healthcare, etc) and to feed the family within a specific monthly income.

newcar man 850x478 1

Another interesting thing is the 4th clause of the SBP regulations (Auto financing limits availed by 1 person from all banks in aggregate, will not exceed Rs 30 lac at any point in time). By looking at the prices, most of the vehicles listed above require more than Rs 30 lac financing based on a 30% downpayment, thus making them unable to get processed unless the purchaser increases the downpayment in order to bring the financing limit within the mentioned cap.

Related: New Cars Sales: Booked vs Delivered

Simply put, a person cannot take a car loan of more than Rs 3 million. Lastly, the maxi­mum debt-burden ratio has also decreased from 50 to 40%. This means if a person earns Rs 100,000 a month, then he will be eligible for a monthly installment of a maximum of Rs 40,000. Now see the table again and do the math, how much you need to earn if you wish to purchase an ordinary Toyota Corolla via bank financing?

20180324 things the rich do that the poor do not 2

To sum it up, the above scenario brings two situations in front of us, first is the widening economic divide. In simple words, the rich are getting richer, while the poor becoming poorer. Second once again shows the presence of scalpers in the market, since the above calculations render that even a person with a handsome salary is not able to buy most new cars via financing, so who is buying these cars after all? Since sales shown are in fact just “booked” units & not deliveries, the number of new car registrations will perhaps show how much of these new cars are actually going into the hands of genuine buyers.

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