rewrite this content with different wording and keep HTML tags
It’s been about 24 months since auto financing observed a consecutive downtrend. This episode commenced soon after the country’s economy started grappling with depleting foreign reserves and rupee devaluation.
And again, it’s a straight 23rd month since the car finance sector is going down, reaching Rs. 233 billion in May 2024, representing a 22.5% decline compared to the same month last year, and a 1.2% drop from April 2024.
As per the data from the State Bank of Pakistan (SBP), the outstanding auto loans were at Rs300 billion in May 2023, highlighting a significant downward trajectory over the past year.
Significant Reduction
The cumulative decline in auto financing is stark when compared to June 2022, where the total stood at Rs368 billion. This means there’s been a reduction of Rs135 billion in the span of less than two years. Despite the SBP reducing the interest rate to 20.50% on June 10, after holding it at 22% for nearly a year, this move has not spurred an increase in demand for new car loans.
Expert Views
Industry experts informed that the current interest rate remains too high to incentivize potential buyers. He pointed out that high inflation over the past year and a half has significantly eroded people’s purchasing power.
Additionally, upcoming fiscal policies with increased taxation are expected to further reduce disposable incomes, making it less likely for auto financing to recover in the near future.
The reluctance of consumers to purchase new vehicles can be attributed to high monthly loan instalments, a steep 22% interest rate, elevated vehicle prices, and strict SBP regulations on financing. Nevertheless, private bank financing for used cars, especially those up to nine years old, has been a critical factor in keeping the auto financing market active over the past few years.
What’s your thought regarding the nosedive observed in car finance sector in Pakistan? Tell us in the comments section.
