Due to the current economic conditions, the State Bank of Pakistan (SBP) has revised its auto finance policy, making it more difficult for consumers to obtain a bank loan.
The maximum term for the facility to finance automobiles has been reduced from 5 years to 3 years, according to a circular issued by the SBP, for vehicles with engine displacements greater than 1,000 cubic centimeters. For vehicles with engine displacements up to 1,000cc, the maximum duration of the facility has been reduced from 7 years to 5 years.
The recent increase in interest rates by the banking regulator from 13.75 percent, combined with a two-year reduction in the duration of auto finance, will bring the markup rate to its highest level within the banking sector.
The change will be effective immediately for new financing options which the banks/DFIs haven’t yet approved, according to SBP.In recent months, bank lending in the auto finance sector has shown a steady increase on the consumer side. In April 2022, auto financing from the banking sector was worth the amount of Rs. 367 billion.
The markup rate for auto finance is expected to rise to 17-18% following the new changes to the auto finance policy. Furthermore, previous amendments will now apply to financing for all locally assembled/manufactured vehicles, including financing for vehicles with up to 1,000 cc engine displacement and locally assembled/manufactured electric vehicles.
In line with this, the down payment for vehicles has been raised to 30 percent of the worth of the vehicle instead of 15 percent. The maximum amount that can be borrowed by the borrower is now limited to 3 million rupees. 3 million.
The SBP circular noted that the regulatory treatment for Roshan Apni Car products that were communicated previously to RDA banks that are participants will continue to be effective.