Tuesday, November 6, 2018

Auto buyers have to pay 50pc down payment

The central bank – issuing a directive today – has raised the down payment amount while buying private vehicles on loan.
The central bank has lowered the ratio of loan to value of vehicles purchased – loan-to-value ratio – to 50 per cent from the existing 65 per cent. The customers, who could purchase a private vehicle by paying only 35 per cent down payment of the value of the vehicle – as last year, the central bank, through the Monetary Policy for fiscal 2017-18, had raised the ratio to 65 per cent from 50 per cent – now have to pay half of the amount up front as down payment.
Though the central bank’s decision to squeeze financing facilities for private automobile is aimed at controlling the growing import of vehicles – especially luxury ones – the automobile dealers said that the policy will hit the business that contributes to over 20 per cent to the total government revenue.
The dealers claim that more than 60 per cent of the vehicles sold in the market is through financing and increasing the down payment will discourage the buyers. "The auto financing has made possible for the middle class to buy a car," according to the Nepal Automobile Dealers’ Association (NADA) that also expects the new policy move to discourage potential buyers.
Rise in imports of automobile is fuelled by loan from banks and financial institutions. The banks and financial institutions' loans to cars – referred to as hire purchase loans – increased by 14.5 per cent in the last fiscal year 2017-18 to Rs 171 billion from Rs 149 billion a fiscal year ago. Out of the total outstanding loan for hire purchase, nearly 40 per cent is for personal purposes.
Likewise, the number of automobiles – especially cars, jeeps, vans – register increased to 24,338 in the last fiscal year 2017-18 from 21,292 units a fiscal year ago, according to Department of Transportation Management (DoTM).
The government – though not loudly – terms automobile industry as an 'unproductive sector', complains the auto dealers, who thinks the central banks' move to reduce the slab on credit flow in the automobile industry is to check the loans being provided in the 'unproductive sector'.
The central bank has, however, not reduced the down payment for passenger vehicles with at least 40 passenger seats. Similarly, the rule will not be applicable for those vehicles that are used for the purpose of tourism, education, health and supply of goods. Likewise, the central bank has fixed the loan-to-value ratio for private electric vehicles at 80 per cent.
The central bank argues that its decision to squeeze auto financing aims at not only checking the whopping rise in trade deficit but also to address the current 'credit crunch'.

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