It goes without saying that in today’s Pakistan owning a car is no longer a luxury but a necessity. Auto Loan / Car Financing is a standard product offered by most banks, for both new and used cards. The first and the most important decision you make when opting for an Auto Loan /Car Financing is realizing the maximum cost you can comfortably afford, since this is a long term commitment of up to 7 years. You need to ensure that you can comfortably afford the monthly payment of the Auto Loan, in addition to fuel and maintenance expenses. What percentage of income you want to set aside for Car Financing will be a personal decision based on your household income and expenses.
6 Things to Pay Attention to when Considering an Auto Loan / Car Financing:
• Interest Rate: Interest rate / mark up / service charge are a percentage charged on the loan amount which is different from the value of the car for the duration (tenure) of your Auto Loan. This can be a fixed rate – the same rate for the entire tenure of your Car Financing, or Variable rate – a rate that is based on the market and can change year to year. It’s generally recommended that you opt for a fixed rate for your car loan to avoid the volatility of the financial market.
• Insurance/ Takaful Cost: All banks require your cars that are financed to be insured and these can range from 3% – 5% per year, depending on whether you opt for a tracker and if your car is a “hot” car that is prone to theft. This is typically paid in full for one year at the start of your Auto loan and then charged in monthly installments for the next year. Some banks offer the flexibility to make quarterly payments for your insurance.
• Financing Amount: The total amount of financing a bank will offer you depend on what type of car you would like to get, local or imported, new or used, and will differ bank to bank. Generally most banks offer Auto Loan / Car Financing of up to Maximum 85% of the total value of the car.
• Tenure: This is the total duration of your Auto Loan. 7 years is generally the maximum tenure offered for Car Financing. This is calculated using the manufacturing date of your car. For example, a Suzuki Mehran 2010 model can only be financed for 3 years instead of 7, since it would be a 4 year old car.
• Early Settlement Options: In case you wish to pay off your car before the Car Financing tenure is over, the bank usually charges a fee for early settlement.
• Flexibility: You can make a balloon payment and reduce the tenure or monthly payment of your car loan. Some banks offer this facility and it is advisable to have this option open for you.
Eligibility for Auto Loan / Car Financing varies from one bank to the other. However a basic framework of eligibility is as follows:
• Pakistani National Identity Card Holder
• 2 passport size photograph
• You should be aged 21 and 65 years of age
• You should have income from any of the following sources:
o Employment (Permanent/Contractual)
o Business (Partnership/Proprietorship)
Every bank has their own set of internal policies which govern what documentation is required for Auto Loan / Car Financing, below are a few items common to all banks:
• Copy of National Identity Card
• General Income documents such as:
o Income Statement
o Salary Slip
o Bank Statement
• When you are browsing for an Auto Loan / Car Financing, you will have to visit branches, call the call centers or go through a sales agent to collect information. This process requires a fair bit of time and effort. Moreover, you will have to do this multiple times to form a comparison and select the best deal for your Auto Loan / Car Financing. Banks.today provides you with all the information you need about Auto Loans / Car Financing in one window – quick and reliable information.
• Auto Loan / Car Financing Calculator:
• A critical piece of information in deciding which car you can afford is what the monthly payment for your Auto Loan / Car Financing would be. With banks.today, you can quickly calculate how much your monthly payment will be. You will also be able to easily identify which bank is offering you the Auto Loan with the cheapest monthly payment. However, before you decide to pick the cheapest monthly payment loan, be sure to read our FAQ section!
• Registration Charges:
• When you opt for a Auto Loan / Car Financing on a new vehicle, please keep in mind that the vehicle registration cost is not included in the financing amount. Similarly for used vehicles transfer of registration cost is not included in the financing amount.
• Advance Insurance Upfront:
• Whether you’ve taken a Auto Loan for a new or a used car, banks require you to insure the car. Some banks have relationships with insurance companies to provide special rates to their customers. Please keep in mind that this is also an upfront payment for one full year, which is not included in your monthly payments or loan amount, after which the next year insurance is charged in monthly installments.
• Compulsory Tracker:
• Trackers are devices that track your vehicle using GPS. All insurance companies offer their services with and without trackers. Some banks require you to have an insurance policy that has a tracker as well.
• Early Settlement Charges:
• Let’s say you’ve secured a 7 year Auto Loan / Car Financing. Approaching the second year, you get a bonus from your office or an unexpected profit in your business and decide to pay off your car loan earlier. Banks typically charge a certain percentage to allow you to pay off your loan before its tenure or duration is over. If you feel such a situation may arise in your Auto Loan agreement, please ensure you know what that early settlement charges are.
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