Car loans allow one to own an automobile without the hassle of paying all the money at once. Of course, owning a personal vehicle is of economic importance.
Car Loans in Cameroon: Banks Still Charge Higher Vehicle Financing Rates in 2024
Next to housing, transportation is often the second largest expenditure for most urban households anywhere in the world. But insufficient purchasing power among middle-class Cameroonians and limited or no access to vehicle financing put cars out of reach for over 85% of the population.
In developed countries, car loans and vehicle financing schemes help people spread out vehicle payments over several months or even years. However, Cameroon's auto financing space is still very nascent, with available car loans significantly costly and inaccessible.
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Two significant factors that influence the access and affordability of vehicle financing in Cameroon are interest rates and the value of the financed vehicle.
Expensive Car Interest Rates
Several banks and startups currently provide car loans, but they are not cheap, and accessing them can be difficult due to prohibitive credit criteria and high-interest rates. According to the experience of automobile dealer Thomas, the latter factor is the biggest drawback for vehicle financing in Cameroon. "The interest rates available in the auto financing market is the main drawback," he said.
For car loans, banks in Cameroon lend at rates between 15% to 35% per annum compared to an average interest rate of less than 6% available for a 72-month vehicle financing scheme in the USA.
Getting a loan from commercial banks in Cameroon also comes with paperwork and processes, making their approval rate very low, at about 19%.
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On the other hand, microfinance banks are less strict with requirements than larger banks focused on mid-to-large corporate clients. Several microlenders have developed vehicle financing programs, which take the asset as collateral. However, they can still not offer car loans at significantly lower interest rates.
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The Second-Hand Car Problem in Cameroon
The vehicle market in Cameroon remains heavily dominated by imported second-hand cars, primarily due to the inability of most Cameroonians to afford brand new vehicles, including those assembled locally. According to Thomas, the predominance of used vehicles discourages banks from providing car loans.
There are approximately 3 million vehicles on Cameroonian roads, most older than 15 years. The average age of private cars in major cities in the country is 13 years, most likely to have been resold to more than four owners. For light commercial vehicles such as 30 seater buses or coasters, the average age is estimated at 20 years.
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Annual Vehicle Imports in Cameroon
According to the National Bureau of Statistics, total new vehicle registrations annually in Cameroon are estimated at 100,000 (excluding motorcycles), but only 4% are brand new vehicles. The rest are mostly shipped from Europe, the USA, Canada, Japan, and Dubai.
These vehicles, which have often suffered accidents, been repossessed, are out of warranty, and with little or no history about prior usage and service, are referred to as "grey imports." They are traded outside authorized channels, and since they are not purchased from official manufacturers or accredited dealers, they do not come with the service support of the producer.
To minimize the risks associated with providing credit for second-hand imported vehicles, most banks that finance used cars do so through partnerships with car dealers and not directly.
The Drag on the Local Auto Industry in Cameroon
The lack of proper vehicle financing schemes in the country deprives the average Cameroonian of a chance of getting a personal vehicle and has implications on the local automotive industry.
Globally, about 75 to 90% of purchases of cars are done through loans. Also, leasing is done by the local government. It is estimated that 80% of all new car purchases are financed.
Without such financing mechanisms available to buy cars in Cameroon, locally-made brand new vehicles are out of the financial reach of most Cameroonians. Most of them have seen their purchasing power dwindle over the years.
Beyond the direct impact on how Cameroonians commute, Cameroon's current state of vehicle financing leaves the country's auto industry facing challenges that stall its growth potential.
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