Rising interest rates have applied brakes on car loans with banks reporting a sharp drop in fresh disbursals during the current year. But bankers expect a turnaround and spur in growth around Diwali.

As reported by Hindustan Times Business, Ashok Khanna, head auto loans, HDFC Bank said, "The growth for the industry has been on a slowdown and we expect the arrears of the sixth pay commission will bring in liquidity and will improve the demand in the festival season. The growth has come down from 13 per cent in the first quarter to 7 per cent in the second quarter."

While the home loan rates have risen from a level of 7 per cent in November 2004 to 12 per cent currently, the car loan rates have grown from 8.5 per cent to more than 15 per cent at present. The monthly outgo on a 5-year car loan of Rs. 5 lakh currently stands at Rs. 11,894 a rise of close to Rs. 2,000 in three years.

The rise in interest rates has a direct relation to the falling footfall in car showrooms. People are deferring their car purchases till interest rates come down, he added.