Pakistan ranks among the emerging economies of the world and has witnessed its share of ups and downs. The past five years have been particularly tough owing to several reasons including a worldwide recession and the Covid-19 Pandemic. These economic and natural factors have influenced the disposable income of Pakistanis which has witnessed a shrinking trend. Despite these reasons, consumer financing especially auto financing witnessed an increasing trend owing to reduced discount rates. This has however changed, as the new monetary policy witnessed an increase in the discount rate and the state bank of Pakistan placed restrictions on consumer financing. The debt burden ratio was reduced and the tenor of personal loans including vehicle loans was also curtailed. The cap on the debt burden ratio currently is 40 % and the maximum allowable lease tenor of vehicles was reduced from 7 years excluding those with a capacity of 1000 cc or less. This policy change however did not have the desired effect as the debt reliance of consumers has also increased. Whether you belong to the salaried or the business class, transportation remains everyone’s issue and everyone prefers to have his vehicle. Every bank in the country is offering conventional financing or Islamic financing for the procurement of vehicles in the race of becoming the best bank for a Car loan. Below we will discuss the best banks for auto loans. This categorization is based on several factors such as mark-up/profit rates, processing time, terms & conditions, and customer service.
Albaraka Bank Pakistan Limited
Albaraka Bank Pakistan Limited(ABPL) is Pakistan’s first Islamic bank. They offer vehicle loans based on the Islamic mode of financing called Diminishing Musharika. The customer enters into a musharika agreement with the bank according to which both the bank and the customer become joint owners of the vehicle. The bank charges a rental for its share of ownership. The monthly installment is the sum of the monthly principal repayment, takaful, and a rental amount charged to the customer for using that vehicle. As the musharika tenor progresses, the customer’s share in the vehicle increases while that of the bank diminishes till the time when the customer fully owns the vehicle. ABPL is offering one of the lowest rental and takaful rates. The processing time varies from 15 to 20 days from the date you provide complete documents. One commendable thing about Islamic banks is that they do not charge you the rental till you take possession of the vehicle, therefore you do not have to worry about booking time. Another benefit is, that if unfortunately, your vehicle is stolen or becomes unusable due to an accident, Islamic banks cannot charge you the rental till the vehicle is either restored or the damage has been repaired. With all these features, Albarka bank is offering strong competition to become the best bank for car loans in Pakistan.
Dubai Islamic Bank ( DIB)
DIB is another Islamic bank that has been operating in Pakistan for a while now. They have been very active in consumer financing ever since they stepped into the Pakistani market. They are rated as one of the best banks for vehicle loans owing to their low processing time, competitive profit rates, and low takaful rate. They have also established their name in personal financing and are among the few Islamic banks that came up with the idea of Islamic personal loans, a segment where Islamic banks have been lagging behind conventional banks. Customer reviews about DIB are very positive and DIB enjoys a happy customer base when it comes to auto loans.
Bank Alfalah Limited (BAF)
When it comes to naming the best banks for auto loans, Bank Alfalah cannot be left out. It is considered to be the bank that changed and challenged the limits of consumer financing in Pakistan. At one time, their consumer lending was extremely high and was being considered a high-risk factor by risk analysts. That however changed as Bank Alfalah evolved into a mature bank over the years and developed policies for mitigating its market risk. BAF offers vehicle financing in both the conventional as well as the Islamic mode. Compared to other conventional banks, it has a lower but competitive mark-up rate. It has a processing time of 15-30 days. BAF is considered to be one of the pioneers in auto financing and enjoys a substantial portfolio. Customer feedback reveals some issues with the service but overall customer experience has remained positive. Overall, BAF is one of the best banks for a Car loan.
Meezan Bank Limited ( MBL)
Albaraka bank may be Pakistan’s first Islamic bank but the bank that contributed greatly towards the development of the Islamic banking sector in Pakistan is Meezan Bank. Whether it is the corporate sector or the consumer sector, they are the leading Islamic bank and one of the best banks for car financing in the country. Meezan offers competitive profit & takaful rates, however, their processing time is relatively longer than the rest of the banks, particularly because of its huge clientele base. Meezan remains the primary choice of consumers who are interested in car financing, another reason for this inclination is the trust Meezan has built over the years.
JS Bank Limited (JSBL)
JSBL is a conventional bank offering numerous modes of consumer financing including auto financing. One of the features of their auto loans is that you can add a co-borrower, thereby reducing your debt burden and making you eligible for a higher amount of financing. Relative to other banks, JSBL has a smaller consumer financing business but keeps coming up with innovative ideas and promotional offers. The mark-up rates are a little higher than other banks but still within the competitive range. Processing time varies from 15-25 days. Customer reviews about their services are mostly positive.
Conclusion
If you are looking for the best bank for car financing, you should remember that there might not be a substantial pricing difference when it comes to banks. However, when identifying the best banks for vehicle loans you should give due consideration to terms & conditions and try to gauge which banks are more friendly towards consumers. Islamic banks have their benefits but now even conventional banks are offering financing through Islamic windows. One should also keep his eyes open for promotional activities. Many times banks come up with promotional vehicle financing with low rates and customer-friendly terms & conditions.
