Car Financing - Islamic Banking

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Time for Bargains: For the consumers though, those looking out for a lovely deal, lots of bargains are to be had for the asking! This may be the best time to strike the iron i.e. buy a Automobile! & there is any number of financing options obtainable to bring that dream automobile of yours in to the garage!

The Islamic Option: In this editorial, they shall take a glance at the Islamic financing option for purchasing a automobile. Financing for purchase of cars under Islamic Banking is done under the contract of 'Murabaha'. Basically speaking, this is a cost and profit mark up contract.

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Usually, the Islamic Bank or financial institution would have definite criteria to assess your creditworthiness & eligibility for a automobile loan, having regard to your income either from wage, or business i.e. your occupation, & other sources; your every month expenditures, statutory payments etc, & at last your net income.

Now, suppose after going through the above technique, the Bank gives you the lovely news-that you are indeed eligible for a automobile loan of USD 25,000.00 that you had asked for, to buy your dream machine. The next step would be to work out the profit mark up of the Bank on the loan amount. Suppose this works out to USD five,000.00. That means the total cost of this deal, for you, is USD 30,000.00. Of work, the Bank would have factored its profit mark up while calculating your eligibility amount for the automobile loan. The other variation in the above case would be that the cost of the automobile is USD twenty,000.00 & the profit mark up USD five,000.00 or less as the case may be.

Apart from the above, other details to be worked out include: 

Down Payment: Some Banks would need you to make a deposit for the car-that would increase your stake in your dream automobile, as well as bring down the amount/number of installments payable by you.

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Repayment: The loan amount, and the profit mark up, put together, would be divided in to equal number of installments, agreed on, say, 60 or 72 as the case may be, & you would be necessary to repay the same within the stipulated time. Some Banks offer a moratorium on repayment, that is, they let you start repayments after, say, or months after disbursing the loan. Some other Banks also offer to rework the installments after a part of the loan is repaid. Say you have repaid 12 installments. The Bank then works out a brand spanking new EMI on the balance of the loan amount remaining after payment of the 12 installments. On full repayment of the loan, your automobile becomes yours!

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Add-Ons: In the increasingly competitive surroundings that the Banking industry is functioning, it is not unusual to get a few add-ons along with your automobile loan - zero balance account, free/concessional insurance for the automobile, free advisory services in respect of the automobile loan, as well as other services on offer by the Bank, etc. Do avail of the freebies!
The Delivery!: Assuming that you have already identified your kid, that is your dream automobile, & the place that you require to buy at, it is now the turn of the Bank to buy the automobile from the dealer on your behalf, & have it delivered to you!


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