The State Bank of Pakistan (SBP) cut the length of auto loans from five years to three years on Tuesday. This was done to slow down the demand for cars and help the falling rupee.
It was the second time in nine months that auto financing rates went down. On September 23, 2021, the central bank cut the maximum length of an auto loan from seven years to five years.
The country is in a very bad economic situation, with a growing current account deficit and a sharp drop in the value of the rupee. Recently, the government said that it would stop letting people bring in any luxury or non-essential items.
Cars that were already built were also on the list of things that couldn’t be brought in (CBU). But completely knocked down (CKD) cars can only be brought into the country if the SBP gives its permission first.
During the first 10 months of the fiscal year 2021/22, the country imported CKD vehicles worth $1.40 billion, up from $892 million during the same time period in the previous fiscal year. This is a 57.09% increase.
In its most recent circular, the central bank said that the maximum period of ownership for vehicles with engines bigger than 1,000cc has been cut to three years. Also, the maximum loan term for cars with engines up to 1,000cc has been cut from seven years to five years.
“Also, other changes announced earlier in BPRD Circular Letter No. 29, dated September 23, 2021, will now apply to financing for all locally assembled and manufactured vehicles, including financing for vehicles with engines up to 1,000cc and locally assembled and manufactured electric vehicles,“ the SBP said.
At any given time, the total amount of auto financing a single person can get from all banks and development finance institutions (DFIs) will not be more than Rs 3 million, and the minimum down payment for auto financing was raised from 15% to 30% under the old SBP rules.
But under the new rules, Roshan Apni Car products will continue to be regulated in the same way that was told to Roshan Digital Account (RDA) participant banks before.
The most recent changes will take effect right away for new financing facilities where banks and DFIs have not yet given their approval. All other instructions on the subject will stay the same, though.
The move is seen as the central bank’s attempt to cut down on the demand for and import of cars in order to help the local currency, which had just reached Rs 200 per dollar.
Analysts thought that the new rule would make people less likely to buy cars in the coming months. Also, the SBP had already raised the policy rate by 150 basis points, bringing it to 13.75%.
During the first 10 months of the fiscal year 2021/22, sales of cars made in the United States went up by 50%. But car sales dropped 18% from March to April 2022, to 22,370 units, because car prices went up and it cost more to finance cars.
