Car Financing Sees 25th Month Consecutive Decline

A few years ago, the automotive industry in Pakistan faced a double blow—declining sales and limited financing options. While car sales have since recovered, the auto loan market has not followed suit. For over two years now, the financing sector has witnessed new lows each month.

According to the latest data from the State Bank of Pakistan (SBP), car financing saw a significant year-on-year decline of 20.06% in July 2024.

Key Factors Behind the Downturn

This decline is driven by a mix of factors, including:

• Soaring Vehicle Prices: The sharp increase in car prices has put even entry-level vehicles out of reach for many.
• Elevated Interest Rates: Rising interest rates have made financing options more costly and less appealing.
• Stricter Loan Regulations: Tighter loan policies have reduced the eligibility for many potential buyers.
• Increased Taxes on Automobile Imports and Parts: Higher taxes have added further costs, worsening affordability.

The SBP data revealed that car financing dropped from Rs. 285.19 billion in July 2023 to Rs. 228 billion in July 2024. This sharp decline reflects the growing challenges faced by consumers in purchasing new vehicles.

Economic Pressures and Consumer Behavior

The rising cost of living, coupled with elevated interest rates, has made it harder for people to commit to long-term financing. While the month-on-month drop in car financing was modest, the overall trend remains negative. The SBP data also shows a decline in consumer financing for house construction, indicating a broader slowdown in the consumer credit market.

Impact on the Automobile Market

The impact of rising costs is particularly evident in the automobile market. Even the most affordable vehicles have become increasingly out of reach. For instance, the Suzuki Alto, once considered an entry-level option, now costs over Rs. 3 million for the top variant. This steep price hike has made it difficult for potential buyers to justify purchasing a new car.

Conclusion

The ongoing decline in car financing in Pakistan reflects the broader economic challenges facing the country. A combination of rising prices, higher interest rates, and stricter regulations has made it increasingly difficult for consumers to afford new vehicles. As these pressures persist, the automotive and financing sectors will likely continue to face significant headwinds.