Want to buy a car? Here is how you can

Financing cars becomes easier with a 7% reduction in the interest rates since July 2018 making the cost down to 50 percent.

The monetary policies of the State Bank of Pakistan (SBP), the rate at which central banks take from the former discount window, affects nearly all other market interest rates. The rates offered by banks shift in unison when the SBP alters its policy rate.

The central bank lowered its interest rates by over 6 percent to its current rate amid a countrywide quarantine, which plunged the economy into its first recession in 68 years initially this year. This made spending cheaper and took the price down.

How It Works:

The Karachi Inter-Bank Offered Rate (KIBOR) which stays slightly higher than the SBP determines the rate at which banks provide loans to the potential buyers of the car. So, when a bank provides the customers with a loan to buy a car they charge KIOBR along with the bank’s profit which is the fixed percentage of the buying amount.

The KIOBR these days is held at 7.57% reducing it to 14 percent since 2019 making the cost this year almost half of what it would cost earlier

The Buying Amount Of Customer

The customers can pay between 15 percent to 70 percent of the car price out of your own fund when you opt for the car loan the rest can be covered by borrowed funds. The bigger the down payment (your own cash), the lower the sum you pay per month. The customers also have the advantage of paying the loan within a time frame of seven years and have the flexibility to choose their time.

Instead of Rs1.4 million, you will certainly finish the bank Rs1.86 million (or Rs1.99 million if insurance is included)-the sum surpassing the money you lent is the profit margin of the bank. Besides that, subject to modifications in the KIBOR, this monthly installment will differ every year.

The monetary policies, reformed every two months, is a tool that central banks use to control inflation. They make borrowing costly by raising the rates, which eventually decreases consumption and keeps costs under control. Due to the increased inflation rate, the central bank did not adjust its inflation target in the latest monetary policy.

This financial year, which concludes in June 2021, inflation is expected to stay in the range of 9 to 10 percent.

Offerings From Islamic Banking

Ijarah, a Shariah-compliant variant of traditional car rental, is provided by Islamic banks. In addition to the car financing, Ijarah provides a few more facilities that a customer must agree to as it is mandatory to make the transaction.

These payments will stay intact until the completion of your financing contract, unlike traditional banks, and the borrower will bear responsibility for automotive damage during that time.

It charges installments as rents and the financial institution will gift (transfer ownership of) the car to the buyer after five years.

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