Suzuki Swift 2010 in Pakistan

It has been a long time coming. As you are aware, we have been hoping for the Swift to be brought to Pakistan for some time now. Suzuki did what any sensible company should have done and brought a jawdropper to the market. Yes, it is three years late, but aren’t we all? :/

Anyways, the car is lovely, as you can see the pictures 0f the Swift here. And one thing of note is that it comes only in one trim and has no CNG, and that is good as there is hardly any CNG to go around. I hear that CNG owners are probably going to convert their stations into marriage halls, available for rent. If governments make profits from Rental Power, maybe they can make money from Rentals also. Before I get too political, know that the new Suzuki Swift is priced at a cool 1 million rupees. Therefore it is probably not targeted at the Cultus market (Cultus being, frankly, a shit car).

The new Swift obviously is a fun car to see (and according to the Swift reviews, a fun car to drive as well).

The car is priced at PKR 1,000,000/-. (They are pricing it like a Bata shoe – Rs 999,000!)

Leasing the Suzuki Swift in Pakistan

So if you lease your Suzuki Swift with a 20% down, you end up paying to the tune of Rs 24,000 per month. If you can manage up to half the price as down-payment (PKR 500,000), then the per month installment (including the insurance) comes to around a more bearable 16,000 per month.

P.S. If any of you are interested in leasing out this car, do sign up on our soon to be released Leasing section.

The Art of Leasing a Car – How secured is an insured leased car?

Insurance is the only method with which one can ‘reclaim’ some of the expenses incurred in obtaining & using a car. It is adviseable to have complete car insurance even when the car is not leased but in case of leased car the owner of the asset (bank) makes it mandatory for its customers to get complete car insurance. So what does complete car insurance mean?

Complete or ‘full’ insurance as it is sometimes called covers all expenses of repair using original parts for any number of accidents but offcourse there is a catch. The amount for which the vehicle is ‘covered’ reduces due to ‘depreciation’ of car’s value.

Who determines the depreciated value you ask? The insurance companies have a ‘fixed’ 10% annual depreciation as a ‘standard. Meaning your car is assumed to be worth only 70% of its listed price by the time 4th year of lease starts.(Doesn’t matter how well it is maintained it is just all mathematical (not good  commonsense but great ‘business’ sense for the insurer).

I recently had to ‘pay’ 30% value for parts repalced after an accident but still thought it was a good deal so GET IT INSURED.

PS: Some people have even started ‘conning’ the insurers by ‘staging’ fake accidents to claim more than actual but that should be the subject of another post which I’ll write some other time.

The Art of leasing a Car – Flexible Tenures & Downpayment Options explained

While approaching the bank every potential customer has atleast some idea of ‘how long’ his relationship with the bank will be for this particular transaction or in laymen’s terms what will be the duration of this loan? This duration for which the customer will ay installment-based repayments to the bank is also known as the tenure of the loan. This needs to be pre-determined and directly affects the amount of each installment as well as the total amount that one pays for acquiring the car (principal+interest).

Usually the banks offer tenures of 1-5years with the 3-5 years being the most popular selection made by the clients. SBP has however allowed consumer lending for automobiles upto 7 years so you can always ask your banker for an extended period which will then be considered as a deferal from norm but still within the approval authority of the bank. My personal advice is that you take either a 3-year plan or a 4-year plan, reason being that the installments for 1 & 2 year plans will be too burdening on your income (especially if you are salaried individual with fixed income) while in case of 5 to 7 year plans you end up paying more than 1.5times the actual price of the car. Let me explain it through some simple calculations:

Assume that the car of your dreams costs Rs. 1million. You pay a quarter of it as downpayment while the interest rate is taken as 15% which is possibly the best one you can get at the moment then your installment per month would be as follows:

Tenure (Years)            Installment Amt.                 Amount paid during tenure

1                                         Rs.71,875/-                                     Rs.1,112,500/-

2                                         Rs.40,625/-                                    Rs.1,225,000/-

3                                         Rs.30,208/-                                    Rs.1,337,500/-

4                                         Rs.25,000/-                                    Rs.1,450,000/-

5                                        Rs.21,875/-                                      Rs.1,562,500/-

So a Rs.1million car ends up costing Rs,1.5million in a 4-5 year plan even without considering insurance which usually is around Rs.4,000/- p.m for a car in that price category. Thus you must choose tenure wisely after making calculations as above. Your banker will be more than happy to furnish you with complete repayment schedules for all tenures if asked.

Same is the case with downpayment otherwise known as equity contribution by customer. SBP allows from zero upto 50% downpayment however the baks generally allow plans for 10%, upto 30%.  Again this means that you must negotiate strongly with your bank as it will affect the end outcome. Any amount you contribute towards the purchase of the car will reduce the amount provided by the bank thereby allowing total amount of markup to be reduced when downpayment increases. (The more you pay less will be the amount on which you have to pay interest).

Ending as always my suggestion is that you haggle with your bank just like you bargain with your corner-grocery storeman. The more you haggle the better option you will get. Next post will address matters pertaining to insurance.

The Art of Leasing a Car – KIBOR & its implications!

Those of us who have off-late ‘attempted’ borrowing from a bank in the recent past have all heard of the mysterious KIBOR. All banks nowadays peg their lending to the KIBOR & then add their spread to give their customers a flexible rate. Since KIBOR has off-late been rising steeply (atleast during the calendar year 2008) banks have minted quite a few ‘extra’ bucks by merely re-pricing their loans as part of their ‘deal’ with their customers.

Now what the hell is KIBOR you may ask. For the uninitiated (which means the most of us – non-bankers) KIBOR is an acronym standing for Karachi Inter-Bank Offer Rate. KIBOR isn’t a new phenomenon either. It has been around for atleast a dozen years but its impact on the consumer finance sector is a relatiely new phenomenon.

Bankers have lent to ‘each other’ (read: inter-bank i.e. bank-to-bank) by using KIBOR since the early 1990s when this emerged as a substitute for the LIBOR (London Inter-Bank Offer Rate) which though more stable was definitely not in sync with our ‘local’ money market therefore the local banks all got together and came up with KIBOR.

Banks initially lent using KIBOR rate to their Corporate Customers for what became known as Money Market loans (meaning: loans against borrowing from other banks). This was extended to the Commercial/SME segment during the early years of the 21st century. Once the KIBOR became high due to the geo-politcal economic reasons the banks were left with no choice but to abandon fixed-pricing altogether in faour of KIBOR-linkage (meaning: KIBOR-plus-bank’s profit spread).

Further variants of KIBOR that evolved later were attributed to its tenor (which should either match the tenor of the short loans or should be atleast half-year i.e. 6-months or 1-year i.e. 12-months).

People worried by high markup rates can finally heave a sigh-of-relief as the ‘dreaded’ KIBOR has somewhat nosedived from its New Year 2009 peak of around 16% to somewhere around 11% as of 31-July-2009. (%age rate pertains to the most widely used 6-months KIBOR ask rate).

People requiring further clarifications regarding KIBOR in particular &  other advice regarding Car Leasing in general are invited to leave a message alongside this post for a ‘prompt’ reply. Next post in this series will cover flexible tenures & downpayment options.

The art of Leasing a Car

Car leasing today seems to have become a hard science with all the islamic/unislamic/fixed-rate/KIBOR-linked rate/flexible-tenure/flexible-downpayment/insurance options ‘mumbo-jumbo’ and what not but infact it is as much an art as painting or photography. Before I confuse you further with my ‘Science of Art’ lecture here is me breaking my “banker’s code” to let you in on all the unpleasant secret “they won’t tell you” while selling you a car lease.

According to howstuffworks.com website, Leasing has two principal benefits:

(1) You drive a newer vehicle that is always under warranty and seldom needs more than routine maintenance.

and

(2) you often get a larger, more luxurious, better-equipped car.

I believe another very improtant ‘benefit’ missing from the list is the commission offered to the dealer/lease-salesperson & strictly-religious vs moderate orientation. Meaning that even in today’s day & age the car dealer or lease/loan salesperson can force you to get a lease or loan depending on which makes them more richer.

For people working strictly on commission basis the single most important motivation is how much they get out of each deal so beware of them. The people employed by the bank/FI on salary basis are genrally more reliable in their committed offerings. I am just saying that be careful and make sure that the person selling you the car lease is not just making forced sales & expecting no repeat sales from satisfactory regular clients. Let this be your first lesson while leasing a car – NO BROKERS – neither car dealing ones nore lease pushing ones.

Having already discussed the major differences between conventional Leasing & Ijarah Financing (Islamic mode) the next post will deal with KIBOR & how rates get pegged to it including a detail about its merits and demerits.

Buying Used Cars

Pak Suzuki has come out with this very ‘sensible’ offer.

Now you can buy a Suzuki Certified USED car from Pak Suzuki Motors Co Ltd.

The car that you end up buying from them comes with a ONE YEAR WARRANTY and is evaluated on 130 check points (I wonder what those check points are!!?). For more details check out this ad that appeared yesterday.

(Click on the image to view in full size)

Used Suzuki Cars - now official

Used Suzuki Cars - now official

Buying a used car is usually considered something that is not for the masses. People here talk about ‘resale’ value of a car and endlessly tell you that the car that you really, really want to buy will be hard to sell. They are right in saying that, but that is not why you want to buy a car that you really like; you are not buying the damn thing to sell it! You are buying it because you like it, period. That is what most people don’t look at, and for good reason of course – it is a ‘safer’ bet buy something that can be sold immediately when cash is required (liquid assets and all that!). The Toyota Corolla for example, is considered a great car to buy, not because you want to impress your neighbor, but because it has great re-sale value (a lot of people in the market looking for second-hand Toyotas, no doubt!)

Suzuki is the KING in used cars market

But I think you all will agree that the KING of re-sellable cars is Suzuki. I mean, you just have to give one ad in the newspaper classifieds section and you can kiss your car goodbye the very next day. For example, I sold my Suzuki Baleno at EXACTLY the price I had asked for the day after I gave the price. The gentleman who came over to look at the car, paid the amount at the bank (the car was leased from Faysal Bank) and the deal was done in a matter of hours, not days. Before Baleno, I owned a Mehran, which was also sold with the same ease (and again, with a price a couple of thousand rupees more than what the ‘dealers’ wanted me to believe – LESSON # 1: ALWAYS sell your car through the classified sections without involving your typical dealer). So I have had the experience of three Suzukis in the last mmm, 7 to 8 years. The first one was a 1990 Suzuki Swift that I sold to get the Mehran. So yeah, I can say that Suzuki sells easily and quickly.

So it is no surprise that the good folks at Suzuki Pakistan have realized this great opportunity and made the whole ‘second hand’ Suzuki market official.

Car Leasing vs Car Ijarah

The major differences between Car Ijarah & Car Leasing are as follows:

Rights & liabilities of Owner v/s User

An Islamic Ijarah is an asset-based contract, i.e. the Lessor should have ownership of the asset during the period of the contract. Under Islamic Shariah, all ownership related rights and liabilities should lie with the owner while all usage-related rights and liabilities should lie with the user.

A conventional lease contract does not distinguish between nature of these liabilities and places all liabilities on the user of the asset, contradictory to Islamic Shariah.

Continuation of lease rentals in case of total loss or theft of vehicle

If the leased vehicle is stolen or completely destroyed, the conventional leasing company continues charging the lease rent till the settlement of the Insurance claim.

Under the Islamic system, rent is consideration for usage of the leased asset, and if the asset has been stolen or destroyed, the concept of rental becomes void.

Takaful instead of Insurance

Legally (in accordance to Pakistan’s Law and Regulations), it is required for all leasing entities to insure the leased assets. As such, Islamic Banks insure their assets through Takaful only, which is Islamic product for insurance. Takaful will be explained in detail in future postings.

Permissibility for Penalty of Late Payment of Rent under Islamic Shariah

In most contemporary financial leases, an extra monetary amount is charged, in their income, if the rent is not paid on time. This extra amount is the considered as Riba (usury) and is Haram.

Under Ijarah, the Lessee may be asked to undertake, that if he fails to pay rent on its due date, he will pay certain amount to a charity, which will be administered through the Islamic Bank. For this purpose the bank maintains a charity fund where such amounts may be credited and disbursed for charitable purpose.

If you are wondering how does it effect the installments?

The answer is unfortunately, not much.

For a car priced at an even Million Rupees with 50% downpayment and a 3 year tenor the rental/instalment payments are incredibly similar:

Bank Alfalah @ 19% with 3.15% insurance: Rs.20953/month

BankIslami with ‘profit’ & 3.15%insurance: Rs.20585/month

Car Leasing Rates – ouch!

Just got some updates from the bank that I lease my car from i.e. Faysal Bank.

The current rate for leasing cars is a whopping TWENTY SEVEN percent. Yes, 27%! I personally find it unbelievable and when I showed my surprise, the gentleman from Faysal Bank assured me that this is very competitive and this rate includes the insurance.

“Many banks will not tell you about the insurance rate. Our financing is calculated at about 21% if we do not tell you the insurance. But we do tell you the insurance, to remove any misunderstandings in the future”

That is pretty decent of them, no doubt. But 27%, that is just way too expensive to lease out a car. But these are the time when a 1300 CC costs 13 lacs, who am I to blow against the wind. :/

More information on Car leasing in Pakistan at our Car Leasing page (link on the top of the page as well).

P.S. If you, the reader, works at a bank and would like to give me information regarding your bank’s current rates and addresses etc, do so please in the comments section.

Banks adopt stringent policy on auto loans

We had it coming, didn’t we?

Didn’t we all complain that there are too many cars on the road? Didn’t some of us actually said that wait till people start defaulting? But no one could have expected the inflation to hit those debtors and give us some ridiculous statistics to look at. For example: Two years ago, around February, the number of cars being leased out by banks was sixty percent higher than what it is now. Yes, your read that right, SIXTY percent. Six. Zero. No doubt, the increase in the prices of cars have played a role, but so has a few other factors. which has lead to the banks playing tough.

Not so long ago, banks that lease cars would do it quite liberally. Auto financing was their flagship product and it was pushed without end. If you did not have the bank statement filed with your car loan application, no problems, they’d get it later (if that). No CNIC photocopy in hand at the moment? Sure, drop it later. And on and on. The banks looked the other way to get the loan out of their door and beefing up their ‘sales’. But now, the banks are stringent as they know now what pundits warned them about then.

Now all the paperwork has to be in order.

  • pay slip (or proof of business income)
  • CNIC copy
  • bank statement
  • references
  • credit information bureau report (generated against your CNIC from the State Bank of Pakistan, that details all of your loans taken and your performance in paying them back – no doubt, a powerful indicator of your ability to repay loans)

But that is not all. When the times were good (read: slack), you could get away with paying only 15 percent as down-payment. Now the down-payment has to be at least 30 percent.

The car leasing rates are such that depending on the tenure of your loan and the bank you end up choosing, your car lease can be anywhere between 18% and 21%. This has an obvious affect on your monthly payment. For example, a Mehran, with 30% down, has a monthly payment that comes to about PKR 12.500/- That is a lot to pay per month for such a car.

The car industry is definitely up against some serious challenges, given that now the banks are actually playing their part by being by-the-book.

I remember the first car I leased out, I only signed on a few papers and went ahead and got the car (I believe I gave the bank statement and proof of business after one year – the bank was being audited I believe :) ) …