AUTO FINANCING - GETTING EXPENSIVE

However, the increase in car-financing rates cast no negative impact on the number of cars coming to roads.

MARIAM NASIR
Mar 19 - 25, 2007

Commercial banks in Pakistan earlier used to concentrate with almost all of their resources for providing financial assistance to "productive sectors" of the economy like manufacturing, trade, agriculture and services. This was during the last couple of years that competition grew and the banks moved towards consumer products. The consumer financing grew at a very fast pace because of a cutthroat competition among banks and availability of surplus equity. With other products introduced by banks, auto financing played a vital role in making the competition stiffer. Soft car financing schemes continued to play a leading role in making potential buyers impatient to have cars at any cost. It is estimated that nearly 70% cars sold in the country are being financed by the financial institutions. On an average, 9,000 - 10,000 cars add every month to the dilapidated road networks of the country through auto financing. This increase in sales is mainly because of increase in disposable income and rising per capita. Everybody who has some excess liquidity is now buying a car through leasing companies and banks.

Carmakers are continuously gearing up production capacities to bridge the demand-supply gap, besides controlling the late delivery and premium on locally-assembled cars. The rates which averaged around 11-12% during last couple of years have gone up to 15-16%. The car financing rates were hiked during the period when the yields on T-Bills were almost flat. The average spread earned by banks nowadays is nearly 7% and the spread is fabulous in case of auto loans/car leasing. One of the possible reasons for fabulous rates could be higher default rate in the car-financing business.

However, the increase in car financing rates cast no negative impact on the number of cars coming to roads. Whatever the truth may be, the depositors and the borrowers deserve better treatment by the financial institutions. They must fix their service charges at realistic level and contain lavish spending in the name of network expansion and technology.

LOCAL & FOREIGN BANKS

INDUSTRY COMPARISON

LOCAL BANKS

MUSLIM COMMERCIAL BANK - MCB CAR4U

MCB Bank's car financing scheme named CAR4U has standard offer at a variable rate which is 12% markup at 10% equity. They also offer a 'No Documents' option where the markup rate is 13% at 20% equity.

UNITED BANK LIMITED - UBL DRIVE

UBL Drive offers the car financing facility at the markup rates starting from as low as 12.5% per annum. These rates may vary depending on the pricing plan you opt for. These rates are linked with the six months KIBOR rate.

SAUDI PAK BANK - TOP GEAR

Saudi Pak Bank's "Top Gear" offers Free Credit Protection on outstanding loans of up to Rs.500,000, Free Insurance Cover of Rs. 200,000 and Free Tracker Facility and car financing rates ranging between 12.75%-14%.

BANK AL-FALAH - CAR FINANCING

Bank Al-Falah offers quickest processing with balance transfer facility for existing as well as new clients from other banks. The tenure period ranges from 1 to 5 years. The bank has different mark-up rates on old and new cars ranging between 13.5%-17%.

FAYSAL BANK - CAR FINANCE

Faysal Bank finances old and new cars for up to five years. The maximum value of the vehicle shouldn't exceed Rs1.5m. Down payment is 20% with markup rate ranging between 14.99%-15.99%.

ASKARI COMMERCIAL BANK - ASKCAR (CAR FINANCE)

ACBL offers financing up to Rs.1,000,000 for 36, 48 or 60 months period with bank financing up to 75% of vehicle cost, with down payment of 10%, approx charging mark up 12% p.a. on floating rate.

BANK AL-HABIB - APNI CAR

Bank AL Habib Limited offers Auto Loan facility with 10% of invoice value of the car bearing 14.5% of fixed mark up rate for new cars whereas rates for used cars (local/imported) are 15.5% fixed. Finance tenure range between 3-5 years with an available finance amounting Rs. 2,500,000 (max). Minimum salary requirement to avail a loan is Rs. 15,000.

FOREIGN BANKS

CITI BANK - CITI FINANCIAL AUTO

Citi Bank offers new and old car financing option for a period ranging 1-7 years, with at least 21 years of age at the time of financing and will be less than 65 years for self-employed or 60 years for salaried before full repayment of loan. Available financing amounted to Rs.100,000 (min) and 1,750,000 (max), offering 10% equity (submit bank statement or salary slip) and 15% without in addition with 90% and 85% car financing provided by the bank having calculated markup on declining principal balance method.

STANDARD CHARTERED BANK - SCB ISLAMIC AUTO FINANCING

SCB offers Musharaka "Car" - Pakistan's first Musharaka-based auto finance. Diminishing Musharaka is a partnership agreement between a financier and his client partake in the joint ownership of a property/ equipment. Implicit that the client will purchase the share of the financier steadily, consequently increasing his own share until all the share of the financier is purchased by him so as to make him the sole owner of the property. Loan requirement: age ranging 23-65 years or retirement age (whichever is higher) with down payment of 15%. Tenor ranging between 1 year (12 months-min) to 7 years (84 months-max).