Cars are becoming unaffordable for a big section of Pakistanis these days, even through bank financing which is now beyond the reach of many customers.
High-interest rates coupled with the increasing prices of various brands of cars are diminishing the trend of leasing a vehicle from commercial banks.
According to the State Bank of Pakistan, car financing dipped by Rs. 9 billion to Rs. 11.7 billion during H1-FY19, showing a YoY decline of 43.5 percent. It shows that the number of consumers applying for auto-financing is going down due to high monthly installments.
As per an estimate, car financing cost per month for an average customer increased by over Rs. 10,500, which proved to be too high for the borderline consumers. Accordingly, a customer has to pay an installment of Rs. 35,000 per month for a car worth Rs. 1.7 million instead of Rs. 25,000.
Also, the average cost of interest/financing rate of the banks increased from 10.3 percent to 14.4 percent, including the down-payment.
Installments for cars worth more than Rs. 1.7 million have increased further due to the impact of a price spiral made by the car assemblers and a repeated increase in interest rates by the banks.
A customer that availed the bank financing facility earlier last year is now paying comparatively high installments thanks to high interest rates being charged by their respective banks.
Car financing via banks was on the rise from 2015 till 2017. Customers not only purchased cars for personal use but they also bought cars for commercial purposes, employing them in Careem and Uber. Hence, the auto-financing portfolio of the banking industry showed remarkable growth, crossing Rs. 200 billion for the first time in 2018.
However, the gradual increase of policy rates from the beginning of 2018, along with a price spiral on local and imported cars, has taken its toll on the purchasing power of the customers and the banks’ business.