Banks Will No Longer Provide Loans for the Purchase of Imported Vehicles

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The State Bank of Pakistan (SBP) has altered prudential regulations (PRS) for consumer finance, cutting the loan limit and period for imported automobiles in order to restrict import growth and put a brake on the country’s expanding trade and current deficits.

The central bank said in a statement that the changes in the PRs effectively prohibit financing for imported vehicles and tighten regulatory requirements for financing of domestically manufactured/assembled vehicles with engines larger than 1000 cc and other Consumer Finance facilities such as personal loans and credit cards.

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“This focused move will help to restrain economic demand growth, resulting in slower import growth and, as a result, improving the balance of payments.”

The SBP has made the following PRS changes:

  • The maximum auto loan term has been cut from seven to five years.
  • Personal loan maximum terms have been cut from five to four years.
  • The maximum debt-burden ratio that a borrower can have has been reduced from 50% to 40%.
  • At any given time, the total amount of auto financing available to a single person from all banks/DFIs would not exceed Rs. 3,000,000
  • The required down payment for auto finance has been raised from 15% to 30%.

SBP stated that these new laws do not apply to locally built or assembled automobiles with engine capacities of up to 1,000 cc, in order to protect lower to middle income purchases.

They also do not apply to domestically build electric vehicles that promote the use of clean energy, according to the statement.

The financing of these two types of automobiles will continue to be governed by previous restrictions, according to SBP.

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