Auto financing in Pakistan continued its downward trend for the second consecutive year, with total outstanding loans decreasing to Rs230.5 billion in June from Rs233 billion in May.Â
The State Bank of Pakistan (SBP) reported that over the past two years, there has been a total reduction of Rs138 billion in outstanding loans from the June 2022 figure of Rs368 billion.
Despite the SBP’s recent cut in the interest rate from 22% to 20.5% on June 10, the high cost of new, locally assembled vehicles continues to deter potential buyers. Most consumers have opted to lease older and locally assembled vehicles through private banks, showing a clear preference due to more manageable costs.
Factors contributing to the reluctance include high monthly loan installments, continued high interest rates, and the steep prices of vehicles.Â
Additionally, the SBP has imposed financing restrictions as part of efforts to temper demand and help control the current account deficit.
Changes in the withholding tax (WHT) structure, which shifted from a fixed amount to a percentage basis for smaller segments, have inadvertently led to an increase in the tax burden on consumers. The influx of imported used cars in the fiscal year 2024 also negatively impacted local vehicle production, further complicating the market dynamics for auto financing.
