State Bank of Pakistan issued a circular on 24th May 2022 for consumer finance.
State Bank has reduced the time period for car loans through banks in Pakistan.
Details of SBP Circular
For car loans through banks, SBP has reduced the time period for up to 1000 cc from 7 to 5 years.
For above 1000cc cars, the time period reduced from 5 to 3 years.
This new rule is not for the Roshan Apni car Scheme under RDA Accounts.
This circular is applicable for under-process car loan cases which not yet been approved.
But this circular is not applicable for such car loan cases before approval.
Car Loans Reduction Chances
How this circular will affect car financing through banks in Pakistan?
Car financing through banks is expected to be reduced after this circular.
As this circular reduced the time period for car loans hence the installment amount will likely to increase.
As the installment amount increases it affects the debt burden ratio.
The allowed debt burden ratio by SBP is 40%.
It means the loan installments can not be greater than 40% of customer net income per month either salaried or business individual.
If the finance time period is higher then the per month installment is lower and vice versa.
And if the finance time period is lower then the installment amount is higher hence it will highly impact the DBR.
So many people with low DBR can not get bank car loans due to this circular either it is up to 1000 cc car or higher capacity engine car.
Car finance through banks in Pakistan was on rising despite higher prices of the cars and costly marks up.
But with the implementation of this circular the bank car loan is likely to come down.
Hence the objective of SBP to accomplish after the implementation of the circular to lower the car finance in Pakistan through commercial banks.