Vehicle loans drop by 22 percent

In the fiscal year 2022/23, banks and financial institutions invested Rs 159.21bn in vehicle loans (hire purchase), marking a 1.31 percent annual increase. However, in the fiscal year 2023/24, hire purchase loans saw a sharp decline of 22.05 percent, dropping to approximately Rs 124.1bn—a decrease of around Rs 35.1bn from the previous year. Bankers attribute this decline to the sluggish economy in the last fiscal year.

Despite this, banks report an increase in hire purchase loans this year, driven by the growing preference for electric vehicles (EVs). According to Abhash Paneru, Retail Lending Relationship Manager at Sanima Bank, confusion over whether to purchase fuel-powered (ICE) or electric vehicles contributed to the decline in loans last year. Paneru noted that banks have since introduced competitive interest rates for EV loans, offering a 7-year fixed rate of 8.49 percent, with a slight premium added to the base rate for hire purchase loans. He emphasized that loan processing is straightforward, taking about a week once required documents, such as income and tax statements, are submitted.

Interest rates for vehicle loans are fixed for 5, 7, and 10 years across different banks, ranging from a minimum of 7.54 percent to a maximum of 12.50 percent in commercial banks. Development banks offer interest rates from 8.1 percent to 16.47 percent, while finance companies provide loans at rates between 9.98 percent and 17.74 percent. With interest rates falling to single digits and the NADA Auto Show currently underway, there is a favorable opportunity for customers to purchase vehicles on installment plans.

As festivals approach, consumer spending typically increases, and this trend is expected to boost overall vehicle loans. According to Bibek KC, Business Development Officer of Nabil Bank’s Retail Lending Unit, many people are attracted to electric vehicles due to the higher loan facilities provided by banks under Nepal Rastra Bank's guidelines. He noted that the share of EVs in overall auto loans has increased, prompting banks to focus on this segment over the past two years.

Santoshi Shahi, Relationship Manager of Global IME Bank’s SME and Retail Promotion Unit, added that EVs are more attractive due to the financing arrangements offered by the Central Bank and the low-interest rates on hire purchase loans for EVs. Speaking to Annapurna, she mentioned that her bank has set competitive interest rates on Green Drive EV loans at the NADA Auto Show.

According to Nepal Rastra Bank, loans can cover up to 80 percent of an EV’s value and up to 50 percent of a fuel vehicle’s value through banks and financial institutions.

A hire purchase loan is a loan granted to individuals, firms, companies, or organizations for the purchase of vehicles, machinery, tools, or equipment for agricultural, industrial, commercial, or private purposes, with ownership transferred after the full installment is paid. Although hire purchase loans can apply to any movable goods, they are most commonly used for vehicles. Banks and financial institutions offer these loans, and Omni Pvt Ltd was the first company to receive approval from the Central Bank on April 27, 2014, to operate as a hire purchase lender.