Importance of car financing schemes
Transportation is one of the most common needs of people. There are various modes of transportation but nothing can match the comfort and convenience of having your vehicle. However, buying your vehicle can be challenging during the prevailing economic conditions.
The inflation rate is constantly increasing, exerting considerable pressure on the disposable income of people. Vehicles prices have increased considerably in the last few years. During the ongoing year alone, there have been at least three price revisions. In such conditions, buying a vehicle entirely from your funds can be extremely difficult.
This is where auto financing or car loans come in. There are numerous banks in the country offering consumers auto financing schemes. These include MCB, NBP, JSBL, BAF, Habib Metro Car Finance, and many more.
Basic modes of vehicle financing
Currently, in Pakistan, banks are operating in three ways. They are either conventional (interest-based), Islamic, or hybrid (conventional banks with Islamic windows). There are also banking groups in the country that have independent conventional as well as Islamic entities. Conventional vehicle financing is primarily based on the traditional lease mode.
The pricing is based on the time-based criteria for interest. Islamic auto financing can be based on several modes including Ijarah and Musharka. Ijarah is simply a lease arrangement. However, the pricing is not based on the interest rate but lease rentals. Musharka works on the principle of joint investment.
Your down payment is treated as your investment, while for the bank’s share the bank charges you a lease rental. An Example of conventional car financing is the Abl Car Loan, while MCB Islamic bank car finance follows the Islamic mode.
Criteria of eligibility for vehicle financing
Whether it is Habib Metro Car Finance or car financing from any other bank, they all have a certain and common set of terms and conditions. These are mentioned below.
Age & Nationality
You must be an adult with a valid CNIC card. You must be a Pakistani or a Pakistani resident. Foreigners living in Pakistan and working for Pakistani companies are eligible for vehicle loans subject to certain terms & Conditions. There is a limit on the maximum age a borrower can have as old people typically have a lower life expectancy.
Economic status
You must have income, either in the form of salary or proceeds from business activities. The bank will also give weightage to your experience with your current employee and whether you are temporary or permanent. In the case of business owners, the bank will consider years in business and evidence of sale proceeds. This is usually in the form of six months to one-year account statement.
No loans for defaulters
You must not be a defaulter of any other bank on any loan including credit cards, personal loans, etc. The bank will check your credit report (eCIB) which includes the record of your loans and payments. If found unclean, meaning if you have not paid your installments or you have overdue, your request for a vehicle loan will be rejected. This applies to all banks in the country, whether you are availing of Habib Metro Car Finance or from an Islamic bank.
Income and debt servicing capacity
Your income should be sufficient to tolerate the monthly rental as well as all your interest & debt-bearing obligations. To calculate this, the bank will consider all your monthly rentals and loan including personal loans, credit cards, house loans, etc. This data will be used to calculate your Debt service ratio (Total Debt installments including / Gross Salary).
The higher the DSR the lower the eligible loan amount. The bank will only sanction that amount which will keep your DSR within the tolerable range. The DSR limit is decided by the State Bank of Pakistan, and all banks have to comply with it. Abl Car Loan will have the same maximum cap as the BAF car loan.
Other factors and requirements
- Although it is not an obligatory requirement that you should own your residence but the bank will give weightage to this.
- The bank may also demand utility bills of your residence or office to verify authenticity.
- Down payment and lease tenor have restrictions on them which are laid by the State Bank of Pakistan and which have to comply with all times.
- Insurance or takaful is compulsory for all vehicles being financed.
- The pricing or profit rates of banks for vehicle financing do not show a significant variance.
