Auto loans rise to 25-month high in July

KARACHI: Car loans surged to a 25-month high in July, driven by improving consumer demand amid easing financial conditions and a pickup in economic activity.

Auto financing reached Rs286 billion in July, its highest since June 2023, marking a 25 percent increase from the same period a year earlier and 3.0 per cent from the previous month, according to data from the State Bank of Pakistan on Tuesday.

However, auto lending remains 22 per cent below the peak of Rs368 billion recorded in June 2022.“The recovery [in car loans] reflects improving consumer demand amid falling interest rates and is expected to further lift auto sector sentiment, with stronger sales and earnings outlook for listed companies,” wrote Topline Securities on the social media platform X.

According to data from the Pakistan Automotive Manufacturers Association, car sales reached 11,034 units in July, marking a 28 per cent increase compared to the same month last year. However, this figure represents a 49 per cent decline from the previous month. Analysts attribute the year-on-year (YoY) growth in auto sales to a more stable macroeconomic environment, characterised by lower interest rates and declining inflation, which have improved consumer sentiment. The month-on-month (MoM) decline, on the other hand, is mainly due to a high base effect in June, which was driven by pre-buying in anticipation of budgetary changes and accelerated purchases by consumers.

Additionally, data from the SBP shows that bank lending to private sector businesses rose to Rs8.207 trillion in July, up 15 percent from a year ago, but down by 2.6 per cent from the previous month. Consumer financing also saw growth, rising to Rs929 billion in July from Rs802 billion a year earlier, reflecting a 15.8 per cent increase. Consumer loans grew by 1.7 per cent year-on-year.

Pakistan’s real GDP growth rose to 2.7 per cent in the fiscal year that ended in June, up from 2.5 per cent in FY24. Macroeconomic stabilisation, supported by an International Monetary Fund loan programme, has helped boost aggregate demand. This was made possible by improving credit conditions and a significant reduction in borrowing costs, along with benign inflationary pressures.

Inflation had surged to 38 per cent in May 2023 but dropped to 11.8 per cent in May 2024 and further eased to 3.2 per cent in June 2025. However, price pressures accelerated to 4.1 per cent in July.

The central bank held the key interest rate steady at 11 per cent last month, contrary to analyst expectations, due to a deteriorating inflation outlook amid rising energy prices. The SBP has reduced its benchmark interest rate from 22 per cent to 11 per cent since June 2024.