Floating loan for cars becomes difficultBuying cars using bank credit will not be that easy now onwards, as the banking sector regulator has made it mandatory for those applying for auto loans to make a down-payment of at least 50 percent of the value of the vehicle.
Buying cars using bank credit will not be that easy now onwards, as the banking sector regulator has made it mandatory for those applying for auto loans to make a down-payment of at least 50 percent of the value of the vehicle.
The Nepal Rastra Bank (NRB) on Tuesday restricted banks and financial institutions from extending more than 50 percent of the value of the vehicle as credit to auto loan seekers—in a move aimed at reducing the flow of credit towards the unproductive sector. This means those looking for auto loans must pay at least 50 percent of the vehicle’s value upfront at the time of purchasing one.
“This provision, however, will not apply to borrowers seeking loans to purchase vehicles to provide services to the public. Also, vehicles that will be used for construction and other service delivery purposes are exempt from this condition,” NRB Governor Chiranjibi Nepal told a programme organised to conduct the mid-term review of the Monetary Policy.
Banks and financial institutions, as of mid-January, extended a total of Rs 142.6 billion in hire purchase loans, a significant chunk of which goes towards the auto sector, the latest NRB report shows. This accounts for 7.5 percent of the total credit portfolio of Rs 1,895.1 billion of all the banks and financial institutions. Of the total hire purchase loans, Rs 32.5 billion, or 23 percent, was issued in the first six months of the current fiscal year that ended in mid-January, signalling high demand for auto loans this year.
Banks and financial institutions were financing up to 90 percent of the cost of the vehicle, prompting a surge in demand for auto loans. Some of the finance companies are said to be extending up to 100 percent of the vehicle’s cost as loans to borrowers.
The NRB has long been saying extension of loans to unproductive sectors, such as automobile, has been drying up resources for productive sectors, like small and medium enterprises that can create jobs for masses.