Auto Financing Declines Because of Increased Interest Rates

auto financing, interest rates

The sharp increase in interest rates has shown a valuable decline in the Auto financing. The total auto sales have decreased from 30-35 percent to 20 percent in the previous fourteen months.

Honda Drive in and Honda Partner and Honda Quaideen’s Chief Executive Officer, Shabbir Alibhai said that since January, 2018 that the share of auto loans has fallen from 35 percent to 20 percent if seen in the total invoices.

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The cost of vehicles has increased by 10-12 percent in just one year and a 20 percent increase in the higher engine capacity vehicles.

Increased Interest Rates Decline Auto financing by 20 percent.

He stated that the loan on auto financing have jumped from 16 percent to 11 percent after a hike in the discounted prices by the State Bank of Pakistan. The basic criteria to avail auto loans is dependent on the income of an individual or a business income of a businessman, rising rates and cost inflation due to which the customer faces tempering difficulties in paying affordable monthly instalments.

Alibhai said that banks used vehicle investing when the time of delivery was around 6 months, but now with an immediate delivery time of 60 days, the vehicle investing is no more attractive as in the previous situation, their cost of investment was covered through mark-up.

He added that just because of the rise in the auto financing, more and more customers are preferring to use their previous models.

In January 2018, State Bank of Pakistan raised the interest rate from 6 percent to 10 percent. The state Bank states that the devaluation of Japanese Yen and Pakistani Rupee, overall production cost increased and the automobile assemblers which are further passed on the customers. This increased auto prices increased by 18 percent in 2018, compared to only 4 percent in the year 2017.

If calculated as seen on the price hike and interest rates, the auto financing cost per month increased by Rs. 10,476, which proved very high for a general, low-income consumer.

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