Banks increase quota rates for car financing
Cars are becoming unaffordable for a large part of Pakistanis these days, even though bank financing that is now out of reach for many customers. The high-interest rates, together with the increase in the prices of several car brands, are decreasing the tendency to lease a vehicle to commercial banks. According to the State Bank of Pakistan, car financing decreased by Rs. 9 billion to Rs. 11.7 billion during H1-FY19, showing a year-on-year decrease of 43.5 percent. It shows that the number of consumers requesting automatic financing is decreasing due to the high monthly fees.
According to one estimate, the cost of car financing per month for an average customer increased by more than Rs. 10,500, which turned out to be too high for border consumers. Consequently, a customer has to pay a fee of Rs. 35,000 per month for a car valued at Rs. 1.7 million instead of Rs. 25,000. In addition, the average cost of the banks’ interest/financing rate increased from 10.3 percent to 14.4 percent, including the down payment.
Quotas for cars worth more than Rs. 1.7 million have been further increased due to the impact of a price spiral made by car assemblers and a repeated increase in bank interest rates. A customer who used the bank financing service last year is now paying comparatively high fees thanks to the high interest rates charged by their respective banks.
Car financing through banks increased from 2015 to 2017. Customers not only bought cars for personal use, but also bought cars for commercial purposes, using them in Careem and Uber. Therefore, the self-financing portfolio of the banking industry showed a remarkable growth, crossing Rs. 200 billion for the first time in 2018.
However, the gradual increase in policy rates since the beginning of 2018, together with a spiral of prices for local and imported automobiles, has taken a toll on the purchasing power of customers and the business of banks.