The auto sector in Pakistan is quickly returning to its previous upward trend as financing surged to an all-time high of Rs369 billion in May 2026, surpassing the previous record of Rs368 billion reached in June 2022, as lower borrowing costs, aggressive promotional offers by assemblers and banks, and pent-up consumer demand continued to fuel vehicle purchases.

According to data from the State Bank of Pakistan (SBP), outstanding automobile loans rose to Rs369.12 billion at the end of May, registering a 36% year-on-year increase and a 3% rise from April’s Rs359.5 billion. The milestone marks the 18th consecutive month of growth in auto financing, highlighting the sector’s sustained recovery after several years of weak demand.

Research house Topline Securities noted that the latest peak reflects improving affordability, better vehicle availability and stronger consumer confidence. The trend is expected to continue supporting passenger car sales, particularly in higher-priced segments where financing plays a crucial role.

The sharp rise in financing comes despite a 100-basis-point increase in the SBP policy rate to 11.5% in April. Market participants said buyers remain comfortable with prevailing lending rates, as they have seen worse rates in recent past, especially compared with the exceptionally high borrowing costs over the past two years.

Auto trader Sabir Shaikh said a significant backlog of replacement demand had accumulated over the last five to six years as consumers delayed upgrading vehicles amid economic uncertainty, high inflation and elevated financing costs.

“People were holding on to their existing vehicles for longer periods. Normally, many consumers replace their cars every two to three years, but that cycle was disrupted after Covid-19 and the subsequent economic slowdown,” he said.

According to Shaikh, the release of this pent-up demand has coincided with lower mark-up rates and an increasing number of financing incentives offered by assemblers and banks. These include free registration, complimentary first-year insurance, tracking devices and other promotional packages aimed at attracting customers.

He added that the growing number of automotive brands operating in Pakistan has intensified competition, encouraging companies to introduce more attractive financing schemes. Most customers currently prefer leasing periods ranging from two to three years.

Industry observers noted that the availability of new models, including hybrid and electrified vehicles, has further strengthened consumer interest. Rising fuel prices have encouraged some buyers to shift towards more fuel-efficient options, boosting demand for newer technologies in the market.

Former Chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) Mashood Ali Khan argued that further growth could be unlocked through regulatory changes. He urged the central bank to increase the maximum car financing limit from Rs3 million to Rs8 million and extend repayment tenures from the current three-to-five-year range to seven years. He also called for a reduction in sales tax on small cars to make vehicle ownership more affordable for middle-income households.

Khan noted that some banks have already begun offering special financing arrangements for corporate customers seeking loans above the existing cap based on company financial statements. Such facilities, he said, could help employees upgrade vehicles through employer-backed financing programmes.

Chairman of the All Pakistan Motor Dealers Association (APMDA) HM Shahzad said the government should develop a financing framework for used vehicles to broaden access to vehicle ownership and support the overall automotive ecosystem.

“The industry is now awaiting the government’s new Auto Policy, which is expected to outline localisation targets and long-term development plans for both existing and new entrants, particularly Korean and Chinese manufacturers,” said Khan. He stressed the need for policy consistency, arguing that automakers should be required to keep new models in production for at least five years to ensure adequate spare parts availability and protect consumers from maintenance difficulties.

The strong financing trend has coincided with a sharp recovery in vehicle sales. Sales of cars, sport utility vehicles (SUVs), pickups and vans reached 17,660 units in May, up 19% year-on-year despite a 20% month-on-month decline. During the first 11 months of FY26, total sales climbed 45% to 183,704 units.

Supporting expectations of continued growth, imports of completely knocked down (CKD) and semi-knocked down (SKD) kits by local assemblers jumped 98% to $1.88 billion during July-May FY26, compared with $949 million in the same period last year.

Analysts believe the combination of improving financing conditions, rising model availability and recovering consumer confidence will keep auto sales on an upward trajectory in the coming months, despite lingering economic and geopolitical uncertainties.