In order to reduce import costs in the current economic climate, the State Bank of Pakistan (SBP) has revised its vehicle loan policy, making it more difficult for customers to get financing from banks.
The maximum duration of the car credit facility for vehicles with engines larger than 1,000 cc has been decreased to three years from five years, according to a circular published by the SBP. For automobiles with engines under 1,000 cc, the maximum term of the auto credit facility has been cut to 5 years from 7 years.
The banking regulator’s recent raise in the policy rate to 13.75 percent, along with the reduction in vehicle finance tenure by two years, would result in the highest financing rate or markup rate in the banking industry.
According to SBP, the change would apply immediately to new financing arrangements for which the banks/DFIs have not yet provided permission. The banks’ credit on account of vehicle finance has shown constant increase from the consumers’ side over the previous few months. The banking industry provided Rs. 367 billion in vehicle loan in April 2022.
With the new revisions in the car finance policy, the financing or markup rate on auto financing is likely to rise to 17 to 18 percent. Other revisions made earlier in 202 will now apply to financing for all locally assembled/manufactured cars, including financing for vehicles with engine displacements up to 1,000 cc and locally assembled/manufactured electric vehicles.
As a result, the down payment on autos increased from 15% to 30% of the vehicle’s value. Banks were only allowed to lend a maximum of Rs. 3 million to a borrower.
According to the SBP circular, the regulatory treatment of Roshan Apni Car products that was previously notified to RDA participating banks would continue to be valid.
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