Car Financing Drops for Fourth Consecutive Month

Car financing continues to show a downward trend in Pakistan as it has recorded a decline for the fourth consecutive month in this fiscal year. According to the data released by the State Bank of Pakistan (SBP), auto financing figure in October stood 1.4% lower than its September 2022 level.

In addition to various measures by the SBP to slow down auto financing, a massive increase in car prices, soaring interest rates, plant shutdowns of various assemblers in the last few months owing to import curbs and delays in the delivery of vehicles have forced buyers to defer their purchase decisions.

Related: 2023- Dark Clouds will Remain Looming on the Auto Sector

Commenting on the situation, the Head of Research at Pak Kuwait Investment Company Ltd, Samiullah Tariq while speaking to Dawn said:

“The government does not want to keep auto demand brisk. So it’s attempting to curtail the imports of parts and accessories to help the fragile balance-of-payment situation.”

He went on to add that with a further hike of the key interest rate to 16% by the SBP, auto demand will remain low for the next year at least. It may revive in case the key interest rate comes down by three to four percentage points in the coming months, he added. Mr Tariq said the benchmark interest rate has more than doubled to 16% from just 7.25% in September 2021, which is forcing consumers to pay higher monthly auto loan installments.

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Buyers have also restricted their purchases of new cars, Tariq highlighted as auto sales dropped to 39,700 units in July-October period from 74,952 units a year ago. The sales of pickups and 4x4s also dropped to 8,234 units in the same four months from 14,969 units a year ago. One of the main reasons for anxiety among buyers is an average increase of up to 40% in car prices since September 2021.

Related: Can’t Even Avail Auto Financing, Who’s Buying All These Cars?

Auto financing also faced other challenges like the upper limit of Rs 3 million on auto loans to curb the sale of costly vehicles as well as the reduction in the auto loan repayment tenor. The SBP also cut the debt-burden ratio (DBR) last year, as a result of which the monthly auto loan payment must now account for 40% or less of one’s income versus the earlier threshold of 50%.

Source: Dawn

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