Auto Loan Rejection Rates in Thailand Remain High, Affecting Sales in Crucial Segment
The Federation of Thai Industries (FTI) predicts that the auto loan rejection rate in Thailand will reach 30-40% this year, similar to last year. This is due to concerns over bad debt among lenders and the country’s high household debt. According to the FTI, prospective pickup buyers are the most likely to have their loan requests denied, leading to slow sales in this crucial segment.
The rejection rate for auto loans continues to rise, which not only affects potential car buyers but also has a significant impact on businesses along the supply chain. Suppliers of car seats, tires, glass, and electronic components are all feeling the effects of the high loan rejection rates.
Banks in Thailand are becoming more cautious about providing auto loans, especially with the Bank of Thailand’s “Responsible Lending” campaign in place. This campaign aims to address the country’s major household debt problem by improving the quality of household loans and reducing long-term debt ratios. Thailand’s household debt-to-GDP ratio is currently at an unsustainable level of 91%, compared to an average of 60% in other emerging markets.
Surapong Paisitpatanapong, vice-chairman of the FTI and spokeswoman for the Automotive Industry Club, has called on the government to implement policies that will boost the automobile industry. The automobile industry is a key component of the manufacturing sector and the country’s exports. In fact, pickups account for 55% of all car exports, with passenger cars and other vehicles making up the rest.
The decline in auto loan approvals has had a significant impact on car production in Thailand. The Office of Industrial Economics reported that car production fell for the ninth consecutive month in April. This is attributed to stricter credit criteria, low consumer purchasing power, and the economic recession. Car manufacture fell by 11%, with pickup output experiencing a sharp decline of 45.9%. From January to April, car production fell by 17% to 518,790 units.
The decline in car production has also affected domestic car sales, which fell by 21.5% year on year in April. Car sales in the first four months of the year decreased by 23.9%, totaling 210,494 units. Car exports declined by 6.8% year on year in April due to weaker demand from trading partners.
In light of this data, the FTI club is considering lowering its auto manufacturing target for Thailand this year. The club had set a manufacturing target of 1.9 million vehicles, a 3.15% increase from the previous year, with 1.15 million for export and 750,000 for domestic sales.
Car manufacturers and dealers are hoping that upcoming events like the Fast Auto Show Thailand in July and the Bangkok International Motor Expo in the fourth quarter will help boost car sales in the second half of the year. Additionally, they expect that increased state budget investment will stimulate economic activity and benefit the car industry.
For those considering applying for a car loan in Thailand, it is important to be aware of certain requirements. Interest rates can vary based on credit score and the bank chosen, so it is advisable to compare rates from different institutions. Typically, a down payment of at least 20% of the vehicle’s value is required, and loan terms usually range from three to seven years. Residency details, a valid ID, and proof of income are necessary for the loan application process.
Foreign nationals may need to provide additional documentation, such as a letter from their company or a work authorization. Some banks may also require a guarantee. Monthly repayment plans are standard, and it is essential to make payments on time to avoid penalties. It is important to remember that the car acts as collateral for the loan, and failure to repay the loan may result in the bank repossessing the vehicle.
Despite the challenges, obtaining a car loan in Thailand can be relatively straightforward if the requirements are fulfilled and all necessary paperwork is provided.