SBP’s Rate Cut Benefits Pakistani Car Buyers

Interest rates play a critical role in determining the affordability of car financing. In Pakistan, the car financing sector has witnessed a substantial decline over the past two years. In June 2022, outstanding auto loans stood at an all-time high of Rs. 368 billion. However, by December 2024, this figure dropped to Rs. 235.45 billion, reflecting a significant reduction of approximately 36% over two years.

The State Bank of Pakistan’s (SBP) recent policy rate cut is set to alleviate borrowing costs, making auto loans more accessible to consumers. A 1% reduction in interest rates can lower monthly installments by around 7-10%, depending on the loan amount and repayment tenor. For example, a Rs. 1,000,000 car loan with a monthly payment of Rs. 25,000 at an interest rate of 13% could see a decrease to Rs. 22,500 if the rate drops to 12%.

This reduction in interest rates has a cascading effect. Commercial banks and financial institutions are likely to adjust their rates accordingly, further lowering borrowing costs for car loans. This decrease in monthly installments offers significant financial relief, especially for middle-income households that previously considered auto financing unaffordable.

The SBP’s proactive approach to reducing policy rates is expected to rejuvenate the auto financing sector by making car ownership more attainable. With lower monthly installments, more consumers may be inclined to explore car loans, potentially increasing demand in the automotive industry.

For car buyers, this policy shift not only makes financing easier but also supports long-term affordability, encouraging more individuals to invest in vehicles. As financial institutions adapt to the revised rates, the coming months could witness a surge in car loan applications, contributing positively to the overall economic outlook.

This move marks a promising step toward economic recovery, offering relief to consumers and boosting activity in Pakistan’s automotive sector.

Afsheen Gohar

Afsheen Gohar is a seasoned writer with a wealth of experience in crafting authentic and well-researched articles. Her dedication to delivering high-quality content is evident in her work, where she combines a passion for storytelling with a commitment to accuracy and depth. Afsheen’s writing reflects her ability to engage readers with compelling narratives while providing valuable insights on a diverse range of topics.