CAR FINANCING AND IT’S WORKING

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Introduction to Car Financing

• Car Finance is all about buying a car at low price and lending it on a specific interest rate to other hand.

• And the other person must agree to give you repayments with the certain amount of interest.

• The party is getting car loan must have a good credibility (you must have a job though which you can give the certain money to the other party).

• That it spreads the total cost of a vehicle to a bigger extent rather than accepting cash at once.

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Individual/Personal Car Finance:

• also known as personal car financing

• like contacting an intermediary who can search a person (who is in search to get car loan) to you and set a commission between two parties (you and the person taking that car on loan)

Eligibility and Quantum:Targets 21 to 60 years old person who can pay the loan.

Rate of Interest and Repayment:Repayments should be given with the certain amount of interest.

Security and Insurance:You need to provide something worth same as vehicle.

Eligibility and Quantum:Eligibility and Quantum:

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Types of car loan

Secured Loan• There will be a security in that loan.

• if you will unable to pay your payments for the specific time then the lender has the authority to take procession of your vehicle or item.

• The interest rate or percentage of monthly payment will be fixed no matter what happens the rate will be fixed and you have to pay the remain on the same rate for time period.

• Short term and long term Secured loans

Unsecured Loan:

• There will be no security in that loan.

• Highly Risky.

• Variable interest rate.

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Types of car loan

Specialized Loans:

• suitable for students. If you are a student and you need a car then specialized car loan is the best choice for them. It allows you to postpone your repayments for a limited time (for example, you’re studying and can’t pay the loan so you can pay after completing your studies). Or Bad credit loans

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Ijara Car Financing/Loan

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Ijara Financing

• The word Ijara means Rent, Ijara financing means that your are giving something on rent. And it is widely getting common in Pakistan.

• it’s also be defined as the transfer of ownership to other person on agreed price and conditions or situations.

• This is according to Islam (Shari’ah)

• And disapprove the things that violates Islamic boundries.

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Understanding Ijara Financing:

• In Ijara car financing you replace interest based repayments to rent payment.

• There will be some mutual agreements between the lender and the borrower about the agreement they are making.

• According to the people, they find it more easy and flexible comparing the normal car financing.

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Ijara and Murabaha Financing

• Murabahah is a particular kind of sale where the seller expressly mentions the cost of the sold commodity he has incurred, and sells it to another person by adding some profit or mark-up thereon.

• The profit in Murabahah can be determined by mutual consent.

• All the expenses incurred by the seller in acquiring the commodity like freight, custom duty etc.

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Difference Ijara and Murabaha Financing

• Murabaha is a fixed rate and also for short term, But Ijara can be for long term.

• In Murabaha you have to submit anything worth the same as security. While in Ijara, you don’t have to provide any security.

• Similar to Murabaha, in Ijara you have to pay a certain amount of fair percentage on return.

• In Ijara the ownership does not transfer until the full payment while in Murabaha, the ownership transfers to the other hand on the day that person made his first payment.

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Reasons for taking Ijara instead of Murabaha Financing:

• To avoid the risk

• To go for lease and long term profits instead of short term.

• Ijara does not require credit evaluation.

• In Ijara the ownership is not easily transferable.

• Due to long term profit, In Ijara you can earn more as compare to Murahaba financing.

• The rate is a bit high which is easily to get more profits and in Pakistani people is 65% preferring Ijara financing.

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Pillars Of Ijara:

• Muajjir: A person who give something for hire – Lessor, landlord, owner etc.

• Musta’jir: A person who takes on hires – Lessee, tenant, renter etc.

• Ma’jur: A thing given for rent

• Al-Manfaah: The benefit from a thing – usufruct, services etc.

• Ujrah: Price or fee given for the payment of rent or lease

• Sighah: Offer (Ijab) and Acceptance

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Types Of Ijara:

Simple Ijara (Operating Lease):

• It is the simplest form of Ijara loan, in this the risk is much high because the lesser has to pay the maintenance cost like the damages the borrower made lesser has to pay for it.

Ijara Thumma-Al bay (Financial Lease):

• Normally used and offered by Islamic bank as financial intermediaries in: Obtaining desired asset ,• Obtaining cash money for various purposes

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Choosing the best car loan for you:

• The best car loan is based on your income the more your income is the more easily you can pay your repayments.

• Pakistani people prefers Islamic car financing as it has flaxible loans.

• Secured or unsecured.

• Hidden fees and charges.

• Income

• Over how many years would you like to take to pay the loan back.

• Security

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Type of loan suits best for Pakistan:

• According to the Pakistani situation, Islamic car financing suits the best for them.

• Ijara financing has all the terms well defined and has nothing to hide.

• While personal/Individual car loan can spreads the repayment more.

• Majority of Pakistanis belongs to Muslim religion so they will prefer Islamic financing instead Personal car financing.

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Terms for applying for loans (Both):

• Your income must be enough to bear the repayment.

• In personal loan you have to provide security to get a loan while in Ijara you don’t have to put anything for the security.

• You must have anything worth the same as your vehicle, to get a loan for your car.

• You must have good credit history but in Ijara, you do not need credit history (But you have to agree on the terms and you must be able to pay according to your income.)

• You have to agree to the terms about getting penalize if you delay a payment.

• You atleast needed 2 or may be 4 guarantors, who guarantee that you can be tested and can have their loan.

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Impact of applying Ijara instead of Personal loan on Pakistani economy:

• It has been growing to fast in

Pakistan.

• It has gathered a lot of Pakistani

Market share and creating a lot of

Revenue through Islamic banking,

And apparently with the Islamic car

Financing involved in it.

• A number of Islamic banks are successfully operating their operations and has many braches all over Pakistan and working successfully.

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Conclusion

• As comparing both of these Loans we have come to the point that we need to go to that loan which is income friendly and can pay the full repayments.

• Should go for the loan which doesn’t spread the money to much.

• Ijara is an income friendly which has opened the gates for having a car for yourself with the acceptable repayment with or without security purposes.

• you should have to go towards the that loan which is supporting your uses and try to avoid the type of loans which does not support.

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Thank You!