Car Financing Costs will Haunt You

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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 are 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 buy new cars. Yes it certainly used to be this way, however with the sort of price tag new “local 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:

  • Minimum 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.

civic RS 2

Based on the above, suppose if someone is willing to buy a new Honda Civic RS via car financing, the minimum we would need to pay in terms of 30% down payment will 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 local assembled cars to reflect their EMI against 30% down payment and 5-years (60 months) payback period. Do note that the below mentioned rates will vary depending on the bank you opt & the markup applied. Have a look:

ModelPrice30 % downpaymentEMI
Honda Civic RSPKR 64.99 lacPKR 19.5 lacPKR 104,170
Honda City 1.2PKR 32.49 lacPKR 9.74 lacPKR 52,150
City Aspire 1.5 CVTPKR 37.49 lacPKR 11.24 lacPKR 60,150
Toyota Yaris 1.3PKR 31.09 lacPKR 9.32 lacPKR 49,800
Yaris Ativ X 1.5PKR 34.99 lacPKR 10.49 lacPKR 56,250
Toyota Corolla Altis X 1.6PKR 39.29 lacPKR 11.78 lacPKR 62,850
Corolla Altis Grande 1.8PKR 46.89PKR 14.06 lacPKR 75,300
Toyota Hilux Revo VPKR 88.39 lacPKR 25.1 lacPKR 141,800
Toyota Fortuner DieselPKR 114.89 lacPKR 34.46 lacPKR 163,950
Kia Sorento 3.5PKR 82.03 lacPKR 24.60 lacPKR 131,130
Kia Stonic EX+PKR 44.5 lacPKR 13.35 lacPKR 71,200
Peugeot 2008PKR 58.5 lacPKR 17.55 lacPKR 94,150
Hyundai Staria GLSPKR 92.99 lacPKR 27.89 lacPKR 149,600
Hyundai Tucson AWDPKR 62.99 lacPKR 18.89 lacPKR 101,200
Chery Tiggo 8 ProPKR 65.99 lacPKR 19.79 lacPKR 105,750
Changan AlsvinPKR 29.39 lacPKR 8.81 lacPKR 47,200
Changan Karvaan PlusPKR 19.44 lacPKR 5.8 lacPKR 31,650
Suzuki Wagon R AGSPKR 21.58 lacPKR 6.47 lacPKR 34,450
Suzuki Cultus AGSPKR 24.22 lacPKR 7.46 lacPKR 39,100
Suzuki AltoPKR 17.47 lacPKR 4.34 lacPKR 27,900
Suzuki Swift DLXPKR 28.99 lacPKR 8.69 lacPKR 46,500
DFSK Glory 580 ProPKR 50.40 lacPKR 15.12 lacPKR 80,950
Prince PearlPKR 13.34 lacPKR 4.02 lacPKR 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 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 salaried person, will be able to bear these costs and with such hefty EMIs, how can one be able to bear other cost 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 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 been 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 maximum 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 bring 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 renders that even a person with handsome salary is not able to buy most of 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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