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SBP restrictions: Private car financing firms reap unexpected windfall

Private loans lucrative for people seeking to avoid lengthy bank process

SAMAA | - Posted: Oct 11, 2021 | Last Updated: 2 weeks ago
Posted: Oct 11, 2021 | Last Updated: 2 weeks ago

Private companies offering car financing are celebrating an unexpected uptick in their business after the State Bank of Pakistan or SBP put limits on banks in this regard.

The number of customers heading to avail facilities offered by such entities is steadily increasing. Most of these customers want to buy larger and luxury car models.

According to people connected with the automobile sector, the new directives of the SBP have significantly reduced bank financing and people are thronging at outlets offering cars on credit in Sohrab Goth, Old Sabzi Mandi, Patel Para, Quaidabad, Mauripur and elsewhere in the city.

A number of individuals also offer the same facilities minus any display or showroom. They offer credit for cars in a manageable manner and charge reasonable profit in return.

An auto dealer, Ali Jan, said that securing car financing from banks had become too troublesome for most people, who were now heading to companies or individuals who provide credit for cars on interest rates ranging between 25% and 35%.

The repayment period, he said, could be either 24, 30 or 36 months and the original money could even be repaid in quarterly or bi-annual installments.

According to Ali Jan, although the private credit for car financing was “a bit expensive”, but unlike banks, the customers “do not necessarily have to buy car insurance or install trackers”.

He said that banks also sought proper tax documentation which prevented a substantial number of people from applying for car loans from banks.

“Such people were already regular customers of these private financing companies and individuals, but now people with low tax liability are also availing loans to avoid tough and prolonged loan application process at banks.”

Earlier, the SBP restricted banks from offering car loans above Rs3 million, which was insufficient for buying larger or luxury imported vehicles.

Although the central bank excluded locally-assembled cars with an engine capacity of 1,000cc or below, the same conditions applied on larger models.

The delay in delivery of locally-assembled cars was now four months, and banks did not approve loans in advance.

Subsequently, all this has strengthened those who offered cars on ‘own money’ who actually buy cars from manufacturers much in advance and offer them to customers at a premium.

The chairman of the Auto Dealers Association, HM Shehzad, said that although the SBP had cited these curbs were meant to limit the import of luxury cars. “The amount they intend to save will evaporate just as local car makers jacked up the import of spare parts to keep up with their increasing sales.”

Assemblers, he said, were also prone to spend on imports just as much as importers of refurbished or brand new luxury vehicles.

Shehzad said that autos were among those few items whose import duties were paid in US dollars. Only a few individuals with deep pockets were enjoying an “unexpected boom” because of the central bank restrictions.

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