This section acts as your reference for some technical terms you might come across when researching on how to get a personal loan in Pakistan. If you need more information on personal loans? Check out our comprehensive guide on everything you need to know before applying for a personal loan.
The Annual Percentage Rate, or APR, is the annual rate you are charged for the loan, represented in a percentage figure. APR includes fees and interest. It is a representative value that shows you the interest rate the bank will charge you in a year.
A collateral or security is a personal asset (e.g. property, machinery, mutual fund units, cash at bank, government bonds) pledged in favor of the lender. In the event that you fail to pay, your asset will be at risk of liquidation by the lender. A collateral is required for secured loans. Most (if not all) personal loans in Pakistan are unsecured and thus, do not require you to give any collateral.
Credit history represents a record of your credit transactions, including loans, credit cards, overdraft etc. It also shows a record of repayments made. In Pakistan the name used for a credit history sheet is an ECIB which is maintained with the State Bank of Pakistan.
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 contributing 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
Debt consolidation may be explained as taking on a loan, such as a personal loan, to pay off other outstanding loans. Lenders can assist in consolidating all your debts, including credit cards, overdrafts, into a single loan. Debt consolidation is useful if you wish to save money by lowering your overall interest rate and have the convenience of having to pay just one monthly installment/payment for all loans.
To default on a loan is to fail to make a scheduled payment. In the event of a default, the lender might liquidate your collateral or in case of a personal loan they may take legal action against you. Defaulting on a loan has serious consequences. The lender is required to report the default to State Bank of Pakistan. Defaulting on your loan will result in your credit history be negatively affected (i.e. eCIB), thus adversely affecting your ability to borrow again.
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.
Fixed interest rate refers to an interest rate that does not change for the life of the loan. Most personal loans in Pakistan are charged a fixed interest rate.
A late penalty fee is the fee charged when you make a monthly payment after the due date stated on your monthly bill.
The lender is the party who agrees to give credit products, including loans and credit cards, with the expectation that the funds will be repaid with additional interest or fees. A lender may be a bank or leasing company.
The principal is the total amount you borrowed, excluding interest and other fees.
A secured loan is a loan that requires the borrower to place an asset, such as property, machinery, or other liquid assets such as cash or mutual fund units. If you cannot repay your loan, the asset pledged as collateral may be liquidated 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.
An unsecured loan is a loan that does not require you to place a guarantee or collateral against the loan. Most personal loans in Pakistan are unsecured. Your personal property will not be put at risk of being repossessed by the lender should you default on the loan. However, you may still be subject to legal action if you fail to repay your loan.
Variable interest rate is a type of interest that may go up or down depending on the interest rate at any given time period. Most personal loans in Pakistan are fixed rate, thus payment remains the same regardless of changes in interest rates.
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