Cheaper Loans Fuel Auto Financing Growth Despite Industry Hurdles

Auto financing in Pakistan surged for the eighth straight month in July, as falling interest rates made vehicle purchases more accessible for consumers. According to fresh data from the State Bank of Pakistan (SBP), outstanding auto loans hit Rs285.6 billion, up from Rs276.6bn in June.

Though the trend is encouraging, lending volumes are still far from the Rs368bn peak recorded in June 2022, underscoring the auto sector’s slow recovery from two years of tight monetary policy and economic turbulence.

Interest Rate Cuts Boost Consumer Demand

The recent easing of borrowing costs has been a key driver of this rebound. The current lending rate sits at 11%, exactly half of what it was in June 2024, when auto financing had nearly stalled under 22% rates.

Industry analysts say the more affordable borrowing environment has outweighed July’s car price hikes, which followed the rollout of the government’s New Energy Vehicle (NEV) adoption levy.

“If the SBP maintains the policy rate, we can expect further growth in auto financing,” said Samiullah Tariq, head of research at Pak-Kuwait Investment Company.
Mohammed Sohail, CEO of Topline Securities, added that stable macroeconomic conditions and strong car sales provide “room for sustained growth” in auto lending.

Policy Uncertainty Still Clouding Market Confidence

Not everyone is optimistic. Mashood Ali Khan, a veteran auto sector expert, warned that inconsistent government policies, inflationary pressures, and uncertainty over the rupee-dollar exchange rate continue to weigh on investor sentiment.

“Foreign reserves are still below target levels. While the rupee has been stable recently, rising imports could put renewed pressure on the currency,” he said.

Loan Caps and Leasing Rules Seen as Barriers

Automakers are urging policymakers to relax lending restrictions to unlock further demand. The current Rs3 million cap on auto loans limits financing options, especially for SUVs and premium vehicles. Assemblers argue the ceiling should be doubled to Rs6m.

Car leasing is also burdened by hefty requirements, including a 30% down payment and shortened repayment tenures — five years for cars up to 1,000cc and just three years for smaller vehicles.

Sales Surge Despite Challenges

Despite financing hurdles, Pakistan’s auto market showed strong momentum in July:

• 11,034 cars, pickups, SUVs, and vans were sold, up 28% year-on-year.
• In the first two months of FY25, total sales climbed 43% to 148,023 units, compared to 103,829 units in the same period last year.

Analysts credit the surge to lower inflation, a wider variety of vehicle options, and improved access to financing.