KARACHI/BRUSSELS, (Mashood Ali Khan) – Pakistan’s auto financing portfolio has reached a record level despite a 100-basis-point increase in the policy rate to 11.5 percent, reflecting sustained consumer demand for vehicle purchases.

According to data released by the State Bank of Pakistan (SBP), outstanding automobile loans climbed to Rs369.12 billion by the end of May, surpassing the previous record of Rs368 billion set in June 2022. The figure stood at Rs359.5 billion at the end of April, marking the 18th consecutive month of growth in auto financing.

Industry observers note that while higher interest rates have increased borrowing costs, vehicle financing remains attractive for many consumers. Competitive financing packages offered by automobile assemblers and commercial banks have continued to support demand for both locally assembled and imported vehicles.

Despite geopolitical tensions in the Middle East and elevated fuel prices, consumers have shown growing interest in newer vehicle models, particularly hybrid and electric vehicles, which offer improved fuel efficiency.

Automotive industry expert Mashood Ali Khan said the federal budget provided little relief for the sector and urged policymakers to enhance financing facilities. He recommended increasing the vehicle financing limit from Rs3 million to Rs8 million and extending repayment periods from the current three to five years to up to seven years. He also called for a reduction in sales tax on small vehicles to stimulate demand.

Khan noted that several banks are already offering special financing arrangements for corporate clients seeking vehicle purchases above the current financing cap, allowing companies to extend vehicle upgrade opportunities to employees.

He added that the industry is awaiting the government’s new Auto Policy, which is expected to provide strategic direction for the sector, including localisation targets for Chinese and South Korean vehicle manufacturers.

According to Khan, Japanese automakers typically keep a vehicle model in production for at least five years, whereas Chinese and Korean brands tend to introduce new models more frequently. He suggested that the upcoming policy should require manufacturers to maintain new models for a minimum of five years to ensure the availability of spare parts and after-sales support for consumers.

Meanwhile, sales of cars, SUVs, pickups, and vans reached 17,660 units in May, representing a 19 percent increase year-on-year, although sales declined 20 percent compared with the previous month. Total sales during the first 11 months of FY2025-26 rose 45 percent to 183,704 units.

Analysts expect vehicle sales to remain strong in the coming months, supported by a significant increase in imports of completely knocked down (CKD) and semi-knocked down (SKD) kits by local assemblers. Imports of these kits surged 98 percent to $1.877 billion during the first 11 months of FY2025-26, compared with $949 million during the corresponding period of the previous fiscal year.