I have done quite a lot of research when it comes to financing with Islamic or conventional banks and can solemnly swear that the difference between the two is minimal. Since the market is quite competitive, you will not find one bank offering at 15% and another one offering 12. At the end of the day, you will end up paying 13-15% no matter which bank you use. Let me explain a bit more.
There are 3 factors involved in financing.
- KIBOR - This is around 6.5% and varies on monthly basis. You can check this rate on state bank's website too
- The bank's own rate - whichever bank you choose, will want to earn money too and offer you a rate which they will call "spread". Normally between 3% to 4%
- Insurance rate - if without tracker, then roughly 3%, if with tracker, anything between 3.75% to 4%
If you add up all of the above, the effective rate that you get offered turns out to be 14-15% which, as per current market situation, is fair.
I negotiated a deal with my bank at 13% which was the best deal I could make at that time and am pretty satisfied with it. I agreed to 6.48 KIBOR, 3.52 Bank spread and 3% insurance without tracker as I bought a vehicle with immobilizer and the use of tracker is NOT mandatory on vehicles with immobilizer. Again, if there is tracker, your rate will go +1 appx.
I went for Islamic banking for 2 reasons
- I will start paying them when I will have the car under my possession
- I will not have to pay the WH Tax since the car will be under bank's name
Don't get your hopes high with point #2, they will recoup that money in another way :p. I had a booking duration of 190 days, for each and every day, I had to pay the bank around 300 rupees for the money they loaned me at 10% for the whole duration of the booking process. 300*190=57000. However, I had the option to pay that amount with monthly installments which I did. No biggie. I went for a 2 years lease.
What would I recommend? I would recommend you to go out there and do your research. Go to 10 different banks and get their rates. Let them know your requirements in black and white and ask them to quote you fees without any hidden costs. Remember that there are 3 different rates involved and anyone who says they're offering you 10/11% is lying. I found Askari bank (conventional and Islamic) offering decent rates. Alfalah Islamic was better, which I opted for. The rest were just too expensive for me.
Hope this helps.
