Auto Financing Sees Growth as Interest Rates Drop in Pakistan

Auto financing in Pakistan rose to Rs241.6 billion in January 2025, up from Rs235.45 billion in December 2024, as falling interest rates drove more consumers to take out loans for vehicle purchases, according to the latest data from the State Bank of Pakistan.

In the past seven months, the central bank has reduced interest rates dramatically from 22% to 12%, making loans more attractive for buyers of both new and used cars. This follows a previous peak of Rs368 billion in June 2022, when financing levels declined sharply due to high interest rates.

Experts predict another interest rate cut of 100 basis points during the upcoming Monetary Policy Committee (MPC) meeting scheduled for March 25. This is expected to further fuel the rise in auto financing.

Vehicle sales, including cars, SUVs, vans, and pickups, are projected to stay strong in the near future, bolstered by a 16% increase in imports of completely and semi-knocked down (CKD) kits. These imports totaled $482 million in the first seven months of FY25, compared to $415 million during the same period last year. This has contributed to a 55% year-on-year surge in vehicle sales, with 77,686 units sold during 7MFY25.

Even with lower interest rates, obtaining auto financing remains difficult for many consumers, as banks maintain strict lending requirements. These include a Rs3 million cap on auto loans, shorter repayment periods of five years for vehicles up to 1,000cc and three years for smaller cars, and a 30% down payment requirement.