State Bank cuts auto loan tenure to three years to slow down booming car sales

auto loan

The State Bank of Pakistan has set a new time frame for auto loan in an effort to reduce car imports and auto lending practices. The following are the changed criteria, according to a notification: 

  • For automobiles with engines larger than 1,000cc, the auto finance term has been decreased from five to three years. 
  • Vehicles with engines under 1,000cc have had their tenure cut from seven to five years. 
  • The new adjustments will apply to all locally assembled automobiles, including finance for vehicles with engines under 1,000 cc and locally assembled/manufactured electric vehicles, according to the notification. 

Read more: SBP tightens consumer lending rules to limit car finance

  • New changes are effective immediately on new financing facilities for which banks have not yet granted permission, the statement stated. 

This is the government’s second major step toward controlling inflation and the import bill. 

The banking regulator’s recent raise in the policy rate to 13.75 percent, along with a two-year reduction in vehicle finance tenure, will push the markup rate to the highest in the banking industry. 

According to SBP, the change will apply immediately to new auto loan financing facilities for which the banks/DFIs have not yet provided approval. The banks’ credit on account of auto finance has shown constant increase from the consumers’ side over the last few months. The banking industry provided Rs. 367 billion in vehicle finance in April 2022. 

With the new revisions in auto finance policy, the markup rate on auto financing is likely to rise to 17 to 18 percent. Furthermore, previous revisions will now apply to financing for all locally assembled/manufactured vehicles, including financing for vehicles with engine displacements up to 1,000 cc and locally assembled/manufactured electric vehicles. 

As a result, the minimum down payment for vehicles has been raised from 15% to 30% of the vehicle’s value. A borrower’s maximum financing amount has been limited at Rs. 3 million. 

According to the SBP circular, the regulatory treatment of Roshan Apni Car products that was previously communicated to RDA participant banks will continue to be valid. 

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