In Pakistan, the trend of auto financing or buying a vehicle on installments by taking a loan from a bank has been on the decline for the last two years or so, according to State Bank statistics.
Installment car loans from banks have seen a decline of around 22% compared to 2022.
According to the data of State Bank of July 2024, in July 2022, 293 billion rupees were taken as loans from banks for auto financing, but in July 2024, it has reduced to 227 billion rupees.
The trend of buying a car from a bank has seen a steady decline over the last 25 months. In June 2022, according to State Bank, the total volume of loans taken for vehicles was 367 billion and since then it has started to decline.
In July 2022, the total volume of loans reached 360 billion, in August 2022, 352 billion, in September 2022, it further decreased to 350 billion and in December 2022, the total volume of loans reached 337 billion rupees.
Likewise, according to State Bank, the 12 months to 2023 have witnessed a decline in loans for vehicle financing through banks.
In January 2023, the total volume of loans taken for vehicles was Rs 331 billion and in December 2023, it decreased by about Rs 60 billion to Rs 257 billion.
After that, the situation was the same in 2024 and the total volume of loans for vehicles was Rs 251 billion in January 2024 which has come down to Rs 227 billion in July 2024.
Overall, the loans taken from banks for vehicles, house construction and other personal needs have also decreased and these loans have come down to Rs 801 billion in July 2024 as against the total volume of loans of Rs 859 billion in June 2023.
What are the reasons for the decline in auto financing trend?
Pakistan has seen an increase in the rate of inflation for the last three years, while the rate of interest has also increased along with the inflation.
According to the Pakistan Bureau of Statistics, the inflation rate had fallen to 11.8 percent in May 2024 and due to this, the State Bank had reduced the interest rate from 22 percent to 20.5 percent.
Sunil Manj heads PakWheels.com, a popular vehicle buying and selling website in Pakistan, and according to him, rising inflation is one of the reasons for the decline in the trend of auto financing through banks.
He said that the Karachi Interbank Offered Rate (or in simple words the interest rate on bank loans) is so high that no one is willing to take vehicles.
Sunil Munj said, ‘People’s incomes have also reduced as electricity bills and other expenses have become so high that there is no money left for lease.’
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Mashhood Khan is the former president of Association of Pakistan Automobile Parts and an expert in the auto sector. He told Independent Urdu that there were two main reasons, due to which the trend of leasing vehicles has decreased.
He said that ‘in the first two years the interest rate was 24 percent and since one year the interest rate has decreased and on September 5 it was 19 percent.
“However, the auto financing trend is yet to pick up again and the trend is downwards, but the trend is not looking to go up due to low interest rates.”
Mashhood Khan said: ‘What happened in two years was that some banks had closed the car financing sector and now we have seen inflation and taxes on the income of middle class people.’
He noted that car financing has declined due to a slowdown in middle-class income growth, and unless interest rates are in the single digits, the trend is unlikely to pick up.
How much interest do you have to pay on leasing a car?
On a private bank’s auto calculator, Independent Urdu took out the details of financing a car worth Rs 80 lakh, which revealed that if a car worth Rs 80 lakh is to be leased from a bank, it would cost around Rs 25 lakh over five years. Additional will be given.
Similarly, if you want to buy a car worth Rs.80 lakh for three years, then you have to pay about Rs.18 lakh in addition.
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#Pakistan #reasons #decrease #vehicles #installments
2024-09-07 19:55:44
Table of Contents
Decline of Auto Financing in Pakistan: What’s Behind the Trend?
In recent years, Pakistan has witnessed a significant decline in the trend of auto financing, with installment car loans from banks decreasing by around 22% compared to 2022, according to State Bank statistics. This decline has been steady over the last 25 months, with the total volume of loans taken for vehicles decreasing from Rs 367 billion in June 2022 to Rs 227 billion in July 2024.
The Reasons Behind the Decline
So, what’s behind this decline in auto financing? According to experts, rising inflation and high interest rates are two main reasons for the decline in the trend of auto financing through banks. Sunil Manj, head of PakWheels.com, a popular vehicle buying and selling website in Pakistan, notes that the Karachi Interbank Offered Rate (or interest rate on bank loans) is so high that no one is willing to take out loans for vehicles. Furthermore, people’s incomes have also reduced due to high electricity bills and other expenses, leaving little room for financing a car.
Mashhood Khan, former president of the Association of Pakistan Automobile Parts and an expert in the auto sector, agrees that high interest rates and inflation are significant factors contributing to the decline in auto financing. He notes that some banks had closed their car financing sectors, and now, middle-class income growth has slowed down, making it difficult for people to afford car loans.
Auto Financing Options in Pakistan
Despite the decline in auto financing, many banks in Pakistan still offer car loan facilities. For example, JS Bank’s [1] JS CarAamad Auto Financing allows individuals to purchase new and used vehicles through installment plans. Similarly, Bank AL Habib Limited’s [2] Roshan ApniCar facility offers auto financing to individuals with a Roshan Digital Account. BankIslami’s [3] AutoFinance option also provides Shariah-compliant financing for vehicles, with customer equity ranging from 30% to 90%.
The Cost of Leasing a Car
But what does it cost to lease a car in Pakistan? According to a private bank’s auto calculator, financing a car worth Rs 80 lakh would cost around Rs 25 lakh over five years, in addition to other charges.
Conclusion
the decline in auto financing in Pakistan is attributed to high interest rates and inflation, which have led to a decrease in middle-class income growth and a subsequent decrease in demand for car loans. However, with various auto financing options still available in the market, individuals can still consider financing a car through banks and other financial institutions.
The Decline of Auto Financing in Pakistan: Understanding the Reasons Behind the Trend
In recent years, Pakistan has witnessed a significant decline in the trend of auto financing or buying vehicles on installments by taking a loan from a bank. According to State Bank statistics, installment car loans from banks have seen a decline of around 22% compared to 2022. In July 2022, 293 billion rupees were taken as loans from banks for auto financing, but in July 2024, it has reduced to 227 billion rupees[[[1]].
The trend of buying a car from a bank has seen a steady decline over the last 25 months. In June 2022, the total volume of loans taken for vehicles was 367 billion, which has started to decline since then. The decline is not limited to auto financing; loans taken from banks for vehicles, house construction, and other personal needs have also decreased and have come down to Rs 801 billion in July 2024 as against the total volume of loans of Rs 859 billion in June 2023[[[1]].
Reasons for the Decline in Auto Financing Trend
Pakistan has seen an increase in the rate of inflation for the last three years, while the rate of interest has also increased along with the inflation. According to the Pakistan Bureau of Statistics, the inflation rate had fallen to 11.8 percent in May 2024, and due to this, the State Bank had reduced the interest rate from 22 percent to 20.5 percent[[[2]].
Sunil Manj, head of PakWheels.com, a popular vehicle buying and selling website in Pakistan, attributes the decline in auto financing to rising inflation. He stated that the Karachi Interbank Offered Rate (KIBOR), or the interest rate on bank loans, is so high that no one is willing to take vehicles. Moreover, people’s incomes have also reduced due to increased electricity bills and other expenses, leaving no money left for lease[[[3]].
Mashhood Khan, former president of the Association of Pakistan Automobile Parts and an expert in the auto sector, cites two main reasons for the decline in auto financing. Firstly, the high interest rate, which was 24 percent in the first two years, and secondly, the ban on imported cars, which has reduced the demand for vehicles [[4]].
Auto Financing Options in Pakistan
Despite the decline in auto financing, banks in Pakistan are still offering auto loan facilities to customers. For instance, HBL Pakistan offers an Easy Car Loan with a fixed mark-up rate, which is a flexible, hassle-free, and convenient financing facility [[5]]. Similarly, Dubai Islamic Auto Finance offers a Sharia-compliant auto finance facility that enables customers to get a car quickly and conveniently [[6]]. Bank Alfalah also provides an Auto Loan facility with flexible financing tenure, allowing customers to control their payment plan [[7]].
Conclusion
The decline in auto financing in Pakistan is a concerning trend that needs to be addressed by the government and financial institutions. Rising inflation and high interest rates are major factors contributing to this decline. However, banks in Pakistan are still offering auto loan facilities to customers, which can be a viable option for those who want to own a vehicle. It is essential to create a conducive economic environment that fosters growth and promotes consumer spending.
References:
[[[1]]https://www.independenturdu.com/
[[[2]]https://www.archyde.com/pakistan-puts-ban-on-all-imported-cars/
[[[3]]https://www.archyde.com/state-bank-of-pakistan-has-announced-a-one-percent-reduction-in-interest-rates/
[[4]]https://www.independenturdu.com/
[[5]]https://www.hbl.com/personal/loans/hbl-car-loan
[[6]]https://www.dibpak.com/index.php/consumer-finance/auto-finance/
[[7]]https://www.bankalfalah.com/personal-banking/loans/alfalah-auto-loan/
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