Banks adopt stringent policy on auto loans

We had it coming, didn’t we?

Didn’t we all complain that there are too many cars on the road? Didn’t some of us actually said that wait till people start defaulting? But no one could have expected the inflation to hit those debtors and give us some ridiculous statistics to look at. For example: Two years ago, around February, the number of cars being leased out by banks was sixty percent higher than what it is now. Yes, your read that right, SIXTY percent. Six. Zero. No doubt, the increase in the prices of cars have played a role, but so has a few other factors. which has lead to the banks playing tough.

Not so long ago, banks that lease cars would do it quite liberally. Auto financing was their flagship product and it was pushed without end. If you did not have the bank statement filed with your car loan application, no problems, they’d get it later (if that). No CNIC photocopy in hand at the moment? Sure, drop it later. And on and on. The banks looked the other way to get the loan out of their door and beefing up their ‘sales’. But now, the banks are stringent as they know now what pundits warned them about then.

Now all the paperwork has to be in order.

• pay slip (or proof of business income)
• CNIC copy
• bank statement
• references
• credit information bureau report (generated against your CNIC from the State Bank of Pakistan, that details all of your loans taken and your performance in paying them back – no doubt, a powerful indicator of your ability to repay loans)

But that is not all. When the times were good (read: slack), you could get away with paying only 15 percent as down-payment. Now the down-payment has to be at least 30 percent.

The car leasing rates are such that depending on the tenure of your loan and the bank you end up choosing, your car lease can be anywhere between 18% and 21%. This has an obvious affect on your monthly payment. For example, a Mehran, with 30% down, has a monthly payment that comes to about PKR 12.500/- That is a lot to pay per month for such a car.

The car industry is definitely up against some serious challenges, given that now the banks are actually playing their part by being by-the-book.

I remember the first car I leased out, I only signed on a few papers and went ahead and got the car (I believe I gave the bank statement and proof of business after one year – the bank was being audited I believe ) …