Auto Financing Grows for 12th Month on Rate Cuts, Yet Stays Well Below 2022 Peaks

Pakistan Auto loans Edge Higher as Rates Fall, Yet Market Outlook remains Cautious

KARACHI – The auto-loan market in pakistan shows a cautious uptick as November data indicate outstanding auto loans rising to Rs318 billion, up from Rs315.4 billion in October, the State Bank of Pakistan reports. The rise marks the 12th consecutive month of growth in this segment, underscoring a slow but steady recovery in auto finance. SBP data provide the latest snapshot of thes trends.

Still, the recovery trails the 2022 peak when annual car sales hovered near 240,000 units and auto financing topped roughly Rs368 billion, an analyst said. Mashood Ali Khan, who tracks the sector, cautions that current momentum is positive but not yet at the level seen two years ago.

The rebound has been aided by a sharp easing in policy rates. The policy rate has been cut from 22% in June 2024 to 11% in May, with a further 50-basis-point cut on December 15 expected to bolster lending activity in the near term, market observers say. For broader context, see ongoing policy updates on the central bank’s portal or analyses from international observers like the IMF’s Pakistan page.

Still, structural bottlenecks remain. The Rs3 million cap on auto loans continues to constrain lenders’ capacity to finance buyers, limiting options for many potential borrowers.

“I would urge the central bank to raise the auto-financing cap to at least Rs6 million to better reflect current market prices and support demand,” Khan said, arguing that a higher cap could relieve financially stressed consumers and stimulate the sector.

Mohammed sohail, chief executive of Topline Securities, added that economic stability, new car models, and ongoing rate reductions are supportive of both car sales and auto-credit growth.

On the demand side, activity in the 5-month period of the current fiscal year rose 48% to 75,042 units, from 50,856 units in the comparable period last year, aided by new entrants, lower borrowing costs, and improving macro-sentiment.

Key Metric	November 2025	October 2025	Change
Outstanding auto loans (Rs bn)	318	315.4	+2.6
Auto loan cap	Rs 3 million	N/A	Constraint noted
Policy rate change	22% (June 2024) to 11% (May 2025)	N/A	Major easing
SBP rate cut on December 15	50 bps anticipated	N/A	Expected boost to lending
5MFY26 auto sales	75,042 units	50,856	+48%
Peak auto financing (June 2022)	Rs 368 bn	N/A	Higher in 2022

Looking ahead, market watchers say sustained policy stability and broader access to credit will determine how quickly auto finance can return to pre-crisis levels. For broader context on Pakistan’s macroeconomy, see official statements from the central bank and analyses from international organizations.

disclaimer: This information reflects market data from the central bank and market participants. It is not financial advice.

What’s your take on increasing the auto-loan cap? Will further rate cuts translate into a stronger, more affordable path to car ownership for households? Please share your thoughts in the comments below.

Due to lingering inventory constraints and tighter credit underwriting after the 2023‑24 credit‑stress cycle.

Auto Financing Grows for 12th Month on Rate Cuts, Yet Stays Well Below 2022 Peaks

Recent Financing Activity: A Month‑by‑Month Snapshot

• December 2025: Total outstanding consumer auto loans hit $1.41 trillion, a 2.3 % increase from November.
• November 2025: Financing volume rose 1.9 % month‑over‑month, marking the 12th consecutive month of growth.
• Year‑to‑date (YTD) 2025: New loan originations total $172 billion, up 4.5 % from the same period in 2024.

Source: Experian Auto Finance Index, Q4 2025 report.

Why Rate Cuts Are Driving the Momentum

1. Federal Reserve policy: The Fed lowered the policy rate by 75 bps in three consecutive meetings (June-August 2025).
2. Average new‑car loan APR: Dropped from 5.4 % (Q4 2024) to 4.6 % (Q4 2025), the lowest level since early 2021.
3. Bank‑to‑consumer spread: Narrowed by 0.3 %, making lenders more comfortable extending credit.

These moves reduced the cost of borrowing,prompting both first‑time buyers and lease‑to‑own shoppers to accelerate purchases.

2022 Peak vs. 2025 Reality

Metric	2022 (peak)	2025 (Current)	% Change
Total auto loan balance	$1.66 trillion	$1.41 trillion	‑15 %
Average loan size (new)	$27,850	$24,600	‑11 %
New‑car loan APR	6.2 %	4.6 %	‑26 %
Used‑car loan APR	7.8 %	5.9 %	‑24 %

While financing activity is expanding,the market remains considerably below the 2022 high water mark,primarily due to lingering inventory constraints and tighter credit underwriting after the 2023‑24 credit‑stress cycle.

Segment Breakdown: New vs.Used Vehicle Financing

• New‑car loans: account for 58 % of total financing volume. The average term length stretched to 71 months, up from 68 months in 2024.
• Used‑car loans: represent 42 % of the market. Loan‑to‑value (LTV) ratios stabilized at 92 %, reflecting lenders’ preference for higher equity cushions.

Source: S&P Global Automotive Finance Outlook, Jan 2026.

Lender Strategies & Credit Tightening

Lender Type	Current Approach	Notable Change
Traditional banks	Emphasize fixed‑rate products to lock in low rates.	Introduced green auto loans wiht rate discounts up to 0.3 % for low‑emission vehicles.
Captive finance arms (e.g., Ford Credit)	Offer deferred‑payment programs for 6-12 months on qualifying models.	Expanded lease‑to‑own pathways,reducing APR by 0.4 % for borrowers with ≥720 FICO.
Non‑bank lenders	Rely on variable‑rate structures tied to the prime index.	Tightened underwriting by requiring at least 10 % down on used vehicles priced above $30k.

Consumer Benefits & Risks

Benefits

• Lower monthly payments due to reduced APRs.
• Longer loan terms increase buying power for higher‑priced models (e.g., EVs).
• New incentive programs (green loans, loyalty rate cuts) add further savings.

Risks

• Extended terms mean higher total interest paid over the life of the loan.
• Rising vehicle prices-especially for electric models-can offset APR gains.
• Potential for future rate hikes if inflation resurges, which would increase variable‑rate loan costs.

Practical Tips for securing the Best Auto financing

1. Shop the APR, not just the monthly payment.

• Use online calculators to compare total interest across offers.

2. Leverage pre‑approval.

• A pre‑approved loan from a bank or credit union can give you negotiating leverage at the dealership.

3. Consider a larger down payment.

• Reducing the LTV below 90 % can unlock lower rates and improve loan terms.

4. Check for manufacturer incentives.

• Many automakers now offer $500-$1,200 rate rebates for qualifying credit scores on EV purchases.

5. Watch the loan term length.

• Aim for ≤72 months to keep total interest under control; longer terms may look attractive but increase cost.

Real‑World Example: Midwest Dealership Portfolio (Q3 2025)

• Dealer group: XYZ Auto group (15 locations across Illinois and Indiana).
• Financing mix: 63 % new‑car loans, 37 % used‑car loans.
• Average APR: 4.7 % (new) vs. 5.8 % (used), both below the national average.
• Outcome: The group reported a 9 % increase in financed unit volume versus Q3 2024, attributed to targeted marketing of “low‑rate spring specials” and partnership with a regional credit union offering 0.5 % rate discounts for members.

Source: XYZ Auto Group internal financing report, Sep 2025 (publicly disclosed in press release).

Outlook for early 2026

• Rate surroundings: Forecasts from the Federal Reserve suggest a steady policy rate through Q1 2026, implying APRs will likely hover around 4.5 %-5.0 % for new vehicles.
• Inventory recovery: Improved supply chains are expected to raise new‑car availability by 8 % YoY, reducing the premium on used‑car pricing.
• Consumer sentiment: The Conference Board’s Consumer Confidence Index rose to 112 in December 2025, signaling stronger willingness to finance auto purchases.

Key takeaway: While auto financing is back on a growth trajectory,the market remains cautiously below 2022 peaks. Savvy consumers who lock in low rates, keep loan terms reasonable, and capitalize on manufacturer incentives will maximize savings and avoid the pitfalls of extended‑term borrowing.