Car & Home Finance

Reducing balance vs flat rate

On a reducing balance, profit is charged only on what you still owe, so each installment contains less profit over time. On a flat rate, profit is charged on the full amount for the whole tenure, which makes the same headline rate considerably more expensive. Ask every lender which method it uses.

Most Pakistani bank rates are linked to KIBOR and reset during the tenure. Islamic products such as ijarah or diminishing musharakah use different contracts, but the monthly figure is worked out in a similar way.

Costs to ask about

Processing fees, insurance or takaful, registration, tracker charges and early-settlement charges are usually extra. Request a written repayment schedule from each lender.