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Glossary

This section acts as your reference for some technical terms you might come across when researching on how to get auto loan in Pakistan. If you need more information on auto loans? Read our auto loan product guide on everything you need to know before applying for a auto loan.

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The Annual Percentage Rate, or APR, is the annual rate you are charged for the loan, represented in a percentage figure. APR is the interest rate. It is a representative value that shows you how much the loan will cost you in a year and makes it convenient for applicants to compare auto loans available in the market.

A collateral or security is a personal property, such as car or house, given as a guarantee to the lender that you will repay your loan. In the event that you fail to pay, your property will be at risk of repossession by the lender. A collateral is required for secured loans. All auto loans in Pakistan are secured and thus the vehicle will be held as collateral. The lender secures the loan by holding on to the registration document of the vehicle. You receive these once your loan is fully paid off. The car  is registered on a format referred to as a Hypothecation.

Is the practice of securing the auto loan. Through this practice the lender will have you sign some documents that ensure the car being bought through a loan has the lenders title on the registration documents.  In the event that you mis-payments, or default on the loan the lender will have the right to re-posses the car, and liquidate it through due legal process. The lender holds the title/registration documents of the vehicle with itself. Once the loan is cleared the documents are updated and handed back to you.

Credit history represents a record of all the credit you have taken from lenders, these include loans, credit cards, overdraft, auto loans, secured loans, bank guarantees' etc .

Your credit history reflects your payment history, with regards to how regular you have been with your payments, and also whether or not you have defaulted on any loan. In Pakistan the name used for a credit history sheet is eCIB report which is maintained with the State Bank of Pakistan. Bank's are obliged to report your history to the State Bank at regular intervals.

Credit Information Bureau is an organization that collects and collates credit data on borrowers from its member financial institutions. The financial data is then aggregated in system and the resulting information (in the form of credit reports).

The eCIB is the electronic credit report generated upon request to member financial institutions for the purposes of credit assessment, credit scoring of a borrower. The major purpose of this database is to enable the financial institutions to know the credit history of their prospective customers thus enabling them to make a more prudent decision

To default on a loan is to fail to make a scheduled payment. In the event of a default, the lender will repossess your collateral or take legal action against you.

An early settlement fee is the fee charged by the lender if you decide to pay the remaining balance of your loan in full before the end of loan period.

A partial settlement fee is if you make a balloon payment outside of the payment schedule. This is charged when you make a large payment  at unscheduled intervals. Once you make a partial payment, your installment schedule will be revised against the new outstanding.

Fixed interest rate refers to an interest rate that does not change for the entire duration of the loan. This means that the interest would remain the same monthly through the life of the loan.

A late penalty fee is the fee charged when you miss a monthly payment.

The lender is the party who agrees to give credit.. A lender may be a bank or a financial institution.

The principal is the total amount you borrowed, excluding interest and other fees.

Representative APR is the annual charge, or interest on of funds borrowed. It is a percentage number that allows you to more easily compare between different loans offered in Pakistan. Interest rates may vary based onborrowers credit history, financial situation and employment status. Usually, the interest rate charged will not be too different from the representative APR.

A secured loan is a loan that requires the borrower to place an asset, such as a house or car, as collateral for the loan. All auto loans in Pakistan are secured. If you cannot repay your loan, the vehicle pledged as collateral may be repossessed from you.

Stamp duty is the tax levied on legal documents during processing.

Term refers to the time limit within which your loan must be repaid.

Tenure refers to the duration of the loan.

The down payment is the percentage amount of the vehicle the borrowers pays as the initial deposit to initiate the auto loan. The loan amount is calculated excluding the down payment amount. However, the insurance on the vehicle is calculated on the full value of the vehicle.

Depreciation is the percentage amount reduced in the value of the vehicle due to use. Depreciation is usually calculated on 10%.

This is the value of the vehicle upon completion of the vehicle’s life.

Variable interest rate is a type of interest rate that is subject to change depending on the benchmark at any given time period - the bench mark rate used in Pakistan is Karachi Interbank Offered Rate (KIBOR). The reason floating rates change is that they are linked to the KIBOR  (e.g. KIBOR + Lender Spread). The loans taken out on floating basis generally reset on a per annum basis.  Your equal monthly installment  may be subject to revisions if you have a floating rate loan.  The revision will generally be on a per annum basis.

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