New leasing regulations for this year for those planning to get a vehicle.

If you are planning to lease a vehicle, it is crucial to be aware of the latest regulations and amendments issued by the Central Bank of Sri Lanka (CBSL) for this year (2025). These are significant decisions taken to mitigate risks in the financial sector and promote prudent lending. The primary change involves tightening the maximum loan amount that can be granted relative to the vehicle's value (Loan-to-Value - LTV Ratio).

Revision of Loan-to-Value (LTV) Ratios

The Central Bank has revised the maximum LTV ratios for leasing and other credit facilities for vehicles, effective from July 18, 2025. This means the maximum amount you can borrow against the total value of the vehicle you are leasing is limited as follows:

• For Commercial Vehicles: 70%
• For Private Vehicles (Motor Cars, SUVs, Vans): 50%
• For Three-wheelers: 50%
• For Other Vehicles: 50%

To explain the practical impact of these amendments: due to the new rules, when you lease a vehicle, you will have to pay a larger portion of the vehicle's value as a Down Payment. For example, if you are leasing a private vehicle worth Rs. 10 million, starting from November, you can borrow a maximum of only Rs. 5 million (50%). You will have to pay the remaining Rs. 5 million upfront.

Rules for Used Vehicles

There are also specific rules regarding vehicle registration.

• Registered vehicles used for more than one year: For registered vehicles that have been in use for more than a year since their first registration in Sri Lanka, the maximum loan amount granted should not exceed 70% of the vehicle's value.
• New vehicles and those used for less than a year: Unregistered vehicles or vehicles used for less than a year after registration are subject to the latest LTV ratios mentioned above (such as 70%, 50%).

Objectives of the Amendments

The Central Bank implemented these tightening measures primarily based on the following objectives:

• Reducing risk in the financial system: To control excessive lending in the leasing sector and to balance disparities in LTV ratios between institutions.
• Promoting prudent lending: Encouraging lending institutions to grant credit more responsibly.
• Factors such as controlling foreign exchange expenditure on vehicle imports also have an indirect influence.

The Practical Impact on You

Under this amendment, the down payment required for you to obtain a vehicle has increased significantly. Due to these regulations, you will have to rethink your monthly income and your ability to make the initial payment. Since the loan amount you take is lower, your interest payments may be reduced, but a large sum of money is required upfront.

The most important thing for you if you plan to lease in Sri Lanka this year is that you can only borrow between 50% - 70% of the vehicle's value. Therefore, before obtaining a leasing facility, it is very important to discuss the latest LTV ratio applicable to your chosen vehicle type (effective from November 9) and your down payment capacity accurately with the financial institution.

Leasing Interest Rates and Tenures

Although the overall interest rate level in Sri Lanka has shown some stability recently, leasing rates still vary from institution to institution. Generally, institutions limit the maximum tenure of leasing agreements to 5 or 7 years. However, since LTV ratios have been tightened, it may be possible to negotiate exceeding this limit with some institutions to ease the repayment burden, but the general rule is to maintain the maximum 7-year limit this year as well. Most leasing facilities are based on Fixed Rates, and due to economic uncertainty this year, lenders show a higher preference for fixed interest.

Reduction of Privileges for Electric Vehicles (EVs)

Another point to note with this amendment is regarding EVs. Previously, to promote electric vehicles, they were granted high LTV ratios like 90%, similar to commercial vehicles. However, in 2025, these privileges have been significantly reduced. Under the latest amendments, the relevant LTV ratio (50% from November 9) applies to electric private vehicles as well. This has led to an increase in the upfront amount payable by those leasing electric vehicles.

Before making your leasing decision, it is advisable to be aware of all these facts and their internal regulations from the specific financial institution you intend to deal with.