Auto Financing Surges Amid Interest Rate Cuts and New Car Variants
Auto financing in Pakistan rises to Rs249 billion as lower interest rates and new car variants boost demand. Experts predict continued growth in vehicle sales.
KARACHI: The decline in interest rates has significantly boosted auto financing, which surged to Rs249 billion by the end of February, up from Rs241.6 billion in January. With the policy rate dropping from 22% to 12% over the past eight months, buyers are increasingly opting for bank financing for both new and used vehicles.
This upward trend in car leasing has been evident since August 2024, when auto financing stood at Rs227.3 billion. However, despite the recent improvement, the current figures remain well below the June 2022 peak of Rs368 billion.
Car Financing to Continue Rising
Topline Securities CEO Mohammed Sohail expressed optimism about the continued rise in car financing, attributing it to falling interest rates and a sharp recovery in auto sales after years of stagnation. The market is experiencing a revival, with sales of cars, SUVs, vans, and pickups remaining strong.
Industry experts predict that vehicle demand will remain upbeat in the coming months due to stable prices, a steady exchange rate, improved consumer confidence, and the introduction of new car variants and models.
Auto Sales and Import Trends Reflect Market Growth
Pakistan’s auto sector has seen significant year-on-year growth, with total vehicle sales reaching 89,770 units in 8MFY25, marking a 50% increase from the 59,700 units sold during the same period last year.
Additionally, the import of semi-knocked down (SKD) and completely knocked-down (CKD) car kits rose by 23.4% to $575 million in 8MFY25, compared to $466 million in the same period last year. This increase indicates that local assemblers are preparing for higher production in response to rising demand.
Challenges in Car Financing Despite Interest Rate Cuts
Despite the lower interest rate environment, securing auto financing remains a challenge for many buyers due to strict banking regulations. Current policies include:
- A loan cap of Rs3 million
- A reduction in financing tenure to five years for cars up to 1,000cc and three years for vehicles below 1,000cc
- A 30% minimum down payment requirement
Samiullah Tariq, Head of Research and Development at Pak Kuwait Investment Company Ltd, believes that auto financing will continue to grow as pent-up demand combines with reduced borrowing costs. The introduction of new car models by local assemblers is also expected to drive further growth in the sector.
Industry Calls for Policy Reforms
During a recent corporate briefing, Indus Motor Company urged the government to eliminate the Rs3 million loan cap and rationalize taxes and duties on imported and CKD units to encourage fair competition. Industry players argue that easing financing restrictions could further accelerate auto sector recovery.
With interest rates at their lowest levels in years and consumer confidence improving, the Pakistani auto market is set for a strong rebound, with auto financing playing a key role in fueling the recovery.
