Car financing reaches to record high

Banks' financing of cars in Pakistan increased by Rs 99 billion (or 46 per cent) in the last one year to a record high of Rs 314 billion in July, as financing became more affordable for more people due to reduction in Benchmark interest rate.

The central bank cut the benchmark interest rate by 625 basis points to 7% between March and June 2020 to pave the way for cheap bank financing to help businesses and individuals to deal with epidemics. To stimulate the economy to increase growth, government attention as well as auto production and sales, more people from different income groups (middle-income groups) were encouraged to buy cars.

More importantly, the introduction of new brands and models during epidemics - mostly in Jeep (sports utility vehicle - SUV) and engine capacity over 1000 cc - led to a large number of people during epidemics. A car that emphasizes spending savings from cost reduction.

In addition, changes in economic activity have increased people's incomes, especially in the agricultural sector. Others saved more due to the suspension of international travel and tourism amid the epidemic. The rise in labor remittances in the country has also encouraged people to spend more on luxury cars during the year.

Auto financing has been growing for the past 13 consecutive months (July 2020 to July 2021). According to data compiled by Atlas Honda Limited (AHL) Research, it has maintained record high financing over the past few months.

The number of record financing matches the astonishing increase in auto sales over the past year. Earlier, the industry had halted production and sales for a few months in the wake of the February 2020 outbreak of Covid 19 in the country.

The carmaker sold 20,699 units in July alone, up 104% from 10,123 units sold in the same month last year. Similarly, in the last financial year 2020-21, car sales increased by 90% to 238,000 units. Auto financing will continue as long as interest rates are not single digits. In addition, the government's policy on car manufacturing and the introduction of electronic cars will continue to find new buyers in the country.

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In addition, lower interest rates, increased agricultural incomes and increased remittances from workers boosted car sales and car financing. Meanwhile, stabilization in car prices also played a role in boosting automobile production. For example, car prices, which rose 20.8% during FY20, rose 3.4% during FY21. (At that time) the stabilization of the exchange rate played a role in preventing prices from rising during the period under review.