Let us start this off with the basics, What is Car Financing? Car financing is a process in which you get a direct loan, usually from a bank that you use to purchase your new vehicle, and agree to pay back the amount you borrowed to the bank/company in terms of installments over a set period of time. Car financing is starting to gain popularity in Pakistan at a steady rate, many banks are currently offering car finance with payment periods as little as 1 year , and as long as 7 years, with loans up to 80% of the vehicles net worth. So If you’ve been looking to purchase your next vehicle and are considering using car financing for the first time, here’s everything that you need to know.
Many of the banks that are currently offering car financing in Pakistan have a set of rules and requirements that have to be met to be eligible to receive their car financing services. Let us take Dubai Islamic Bank as an example, they require the person in question to be a minimum of 21 years old and a maximum of 60 years of age if they are employed, the age limit increases 65 years if they are self-employed. They must have a minimum monthly income of 25,000 rupees, be able to produce a bank statement of the past 3-6 months, and must have been employed for a period of over 3 months, 6 months if they are self-employed. And lastly, you must have a valid CNIC and a proof of income. The requirements are pretty standard across almost all the banks in Pakistan that currently offer car financing with little deviations usually occurring in the minimum monthly income and age requirements.
How It Works
Car financing is offered on both used and new cars as well as imported cars. When applying for car financing the main entity that is going to influence your monthly payments is going to be your initial deposit. The minimum upfront deposit in most banks is 15% of the value of the vehicle, and the maximum is usually around 80%. When it comes to selecting your down payment, if you can afford to pay 60% of the vehicles cost then do so, it will serve you better in the long run with lower monthly payments and even a shorter tenure, don’t take an 80% loan just because you can.
Most banks like Dubai Islamic Bank and Bank Alfalah offer car financing services that are fully Sharia compliant, whoever not all banks are like this, so keep that in mind when choosing which bank/company you would like like to finance your car against. When it comes to choosing the tenure period, you can choose anywhere between 1 to 7 years in most banks for a new vehicle and 1 to 5 years for a used vehicle. The shorter the tenure period the higher the monthly payments and vice versa, so choose whichever period suits your needs most, always leaning more towards the shorter period as if you are able to pay a higher monthly installment then do so as it is in your best interest.
The Best Car Finance Bank
To find out which bank gives you the best deals when it comes to financing your cars, for this experiment we are going to use Pakwheels Car Loan Calculator and take three cars from three radically different categories as test examples to find out what is the best finance deal we can get on them. Let’s start out our tests with a brand new Toyota Corolla Altis Grande CVT, with a tenure period of 4 years and a down payment of 40% of the value of the car, this we feel will represent a typical mid-end buyer in Pakistan.
When it comes to the lowest monthly payments from our selection Askari Bank takes the win with a monthly payment of PKR 38,169 narrowly beating out Bank Al-Habib which would have a monthly payment of PKR 38,314. However, the Initial deposit amount of Askari Banks processing fee for finance is more than double when compared to Bank Al-Habib sitting at PKR 4000 in comparison to an estimated PKR 8252. The initial deposit amount of Al-Habib is also nearly PKR 17,000 less than that of Askari Banks. So in a period of 48 months, you would pay PKR 6,960 extra with Bank Al-Habib in comparison to Askari Bank when it comes to monthly payments, but you would pay nearly PKR 22,000 extra with Askari on the initial deposit and processing fees. Clearly, the winner in this round is Bank Al Habib.
Now changing things up a bit were going to take a used 2015 Honda Vezel with about 20,000km priced at PKR 35 Lakh as our test subject. We’re going to put down a 30% deposit and have a tenure period of 7 years, the Vezel we feel will represent the high-end buyer within Pakistan.
For the lowest monthly payments we have a tie between Dubai Islamic Bank and Bank Al-Habib at PKR 42, 792, but once again Bank Al-Habib manages to edge out the competition by offering the lowest initial deposit amount among the five banks that were listed, and the lowest processing fee at PKR 4,000. Once again Bank Al-Habib manages to edge out in this round as well.
For our final round, we were going to take a 2008 1.3 Liter Suzuki Liana RXI with 30,000km priced at PKR 7 Lakh as our final test subject. The tenure period is going to be two years with a down payment of 30%, this we feel will represent the lower end of the market. Immediately one thing we realized is that it seems only two banks offer finance on cars that were manufactured before 2011, those being Dubai Islamic Bank and Burj Bank. Also, the tenure period seems to be a maximum of 2 years as well in this case.
From among our limited options, it seems Dubai Islamic Bank is the best choice when it comes to leasing old cheap cars as they feature the lowest monthly payment, the lowest initial deposit amount and albeit a very slightly higher processing fee of PKR 8352 vs PKR 8120 for Burj Bank.
As per our calculation, the bank best for your car financing is Bank Al Habib, as they are able to provide relatively low monthly installments rates in comparisons to the competitors also the lowest initial deposit amounts and processing fees.But there are other factors also which actually matters such as markup rates, payment terms and conditions and installment duration etc to see what suits you best and then make your choice If you looking to buy a car within the mid-high end market within Pakistan then you should opt for Bank AL-Habib Car finance plan, as per our finance calculator. However, if you are planning on buying a used or a budget car then it seems Dubai Islamic Bank is the way to go.