Pakistan's auto-financing sector steadily growing

Pakistan’s auto financing sector is experiencing a steady rebound, with outstanding car loans climbing to PKR 276.6 billion by the end of June, up from PKR 271.2 billion in May, marking the seventh consecutive month of growth, according to the latest data released by the State Bank of Pakistan (SBP).

This resurgence is being driven largely by the sharp cut in interest rates, which have been slashed to 11% from 22% since June 2024. Lower borrowing costs have boosted consumer appetite for auto loans, although the current volume still lags behind the record PKR 368 billion recorded in June 2022.

Auto industry stakeholders credit the growth to the more favorable financing environment, despite existing hurdles such as a PKR 3 million cap on auto loans and stringent leasing conditions.

Car leasing remains limited, with a 30% down payment requirement and short repayment tenures — five years for vehicles up to 1,000cc and just three years for smaller cars. Industry voices have urged the SBP to consider raising the loan cap to PKR 6 million to widen access for low- and middle-income buyers.

Despite these challenges, vehicle sales are accelerating. Combined sales of cars, pickups, SUVs, and vans surged by 43% year-on-year to 148,023 units in FY25, up from 103,829 units in FY24. The increase has been attributed to easing inflation, greater vehicle variety, and the improved financing climate.

However, the momentum could face headwinds. The recent imposition of the NEV (New Energy Vehicle) adoption levy, effective July 1, has led to price hikes across various vehicle categories. Analysts warn that this could cool financing activity in the coming months.

Meanwhile, broader credit activity is also on the rise. Private sector borrowing reached PKR 9.626 trillion in June — a 12.3% year-on-year increase — while business loans grew by 13.2%. Consumer credit saw significant movement, with credit card usage soaring by 29.7% as more households turned to plastic money to cope with inflation. In contrast, housing finance showed limited growth, rising just 1.7%.

Looking ahead, Topline Securities projects total vehicle sales in FY25, including both Pakistan Automotive Manufacturers Association (PAMA) and non-PAMA members, as well as imports, to exceed 217,000 units, a 31% increase year-on-year. Still, this figure remains well below the FY18 peak of 330,000-350,000 units.

Further growth is expected over the next two years, with projected increases of 14% in FY26 and 13% in FY27. Even so, volumes would still fall short by as much as 15–20% of the record highs seen before the economic downturn.