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A Rs 4,000,000 car financed in Pakistan with 30% down over 5 years at KIBOR plus 3% costs about Rs 68,165 a month. Over the loan you pay about Rs 1,289,898 in markup, plus around Rs 400,000 in insurance. All in, the car costs you about Rs 5.7 million, not Rs 4 million.
This guide explains how banks work out that instalment, the State Bank's rules that limit what you can borrow, and the choices that cut your total cost the most. You can test your own car and bank offer in the Pakistan car loan calculator.
How the instalment is worked out
Banks in Pakistan charge markup on the reducing balance. Each month, part of your instalment pays the markup on what you still owe, and the rest reduces the loan. The rate is usually KIBOR plus a spread: KIBOR is the rate banks lend to each other, and the spread is the bank's own margin.
This is the same formula used for loans everywhere. How loan interest is calculated explains why early instalments are mostly markup.
Worked example: a Rs 4 million car
- Car price: Rs 4,000,000, engine up to 1000cc
- Down payment: 30% = Rs 1,200,000
- Loan: Rs 4,000,000 − Rs 1,200,000 = Rs 2,800,000
- Rate: 1-year KIBOR 13.05% + 3% spread = 16.05% a year
- Monthly rate: 16.05% ÷ 12 = 1.3375%, over 60 months
- Instalment: Rs 68,165 a month
- Total paid to the bank: Rs 68,165 × 60 = about Rs 4,089,898
- Total markup: Rs 4,089,898 − Rs 2,800,000 = Rs 1,289,898
- Insurance at 2% a year: Rs 80,000 a year, Rs 400,000 over 5 years
- Processing fee: Rs 10,000
Total cost of the car: Rs 1,200,000 + Rs 4,089,898 + Rs 400,000 + Rs 10,000 = Rs 5,699,898.
The 13.05% is the State Bank's 1-year KIBOR offer rate on 30 October 2026. KIBOR changes with the policy rate, so check the latest figure and your bank's spread before you apply.
State Bank rules for car financing
| Rule | Limit |
|---|---|
| Minimum down payment | 30% of the car's price |
| Longest loan, up to 1000cc | 5 years |
| Longest loan, above 1000cc | 3 years |
| Total car finance per person, all banks | Rs 3,000,000 |
| All loan instalments together | Up to 40% of your monthly income |
| Imported cars, new or used | Not financed by banks |
These come from the SBP's prudential regulations for consumer financing, as changed in 2021 and 2022, and were still in force in October 2026.
The Rs 3,000,000 cap matters for pricier cars. With the minimum 30% down, any car above about Rs 4.3 million needs a bigger down payment, because 70% of the price would be more than Rs 3 million.
The 40% income rule decides whether you qualify. For the Rs 68,165 instalment above, you need a monthly income of at least Rs 68,165 ÷ 0.40 = Rs 170,413, if you have no other loans.
Shorter loan or bigger down payment?
Here is the same Rs 4,000,000 car at 16.05% in three ways:
| Choice | Loan | Months | Instalment | Total markup |
|---|---|---|---|---|
| 30% down, 5 years | Rs 2,800,000 | 60 | Rs 68,165 | Rs 1,289,898 |
| 40% down, 5 years | Rs 2,400,000 | 60 | Rs 58,427 | Rs 1,105,627 |
| 30% down, 3 years | Rs 2,800,000 | 36 | Rs 98,509 | Rs 746,324 |
A 3-year loan raises the instalment by about Rs 30,000 a month but saves Rs 543,574 in markup. A bigger down payment lowers both the instalment and the markup. If you can afford the higher instalment, the shorter loan is the cheapest way to buy the car. For cars above 1000cc, 3 years is already the longest the SBP allows.
Key idea The lowest instalment is not the cheapest loan. The longer you borrow, the more markup you pay in total.
Why your instalment can change
Most car loans in Pakistan are variable. Your rate is KIBOR plus a fixed spread, and the bank resets KIBOR once a year, sometimes every six months. On the example loan:
- If KIBOR rises by 1%, the instalment goes up from Rs 68,165 to about Rs 69,663.
- If KIBOR falls by 2%, it drops to about Rs 65,224.
Some banks offer a fixed rate for the whole loan. It usually starts a little higher, but protects you if rates rise. Ask your bank for both offers and compare the total cost. APR vs interest rate explains why the fees matter as well as the rate.
Conventional loan or Islamic car ijarah?
Islamic banks use ijarah, a lease. The bank buys the car and you pay rent for it, and the car becomes yours at the end. The rent is usually worked out from KIBOR in the same way as a normal loan, so the monthly figure is similar. Read the terms on late payments, insurance (takaful) and what happens if the car is stolen or written off, because these differ between banks.
Costs people forget
- Insurance or takaful. Banks require comprehensive cover for the whole loan, usually 1.5% to 2.5% of the car's value a year.
- Registration and token tax. Paid when the car is registered and each year after. People not on the Active Taxpayers List pay higher withholding tax on registration.
- Processing fee and tracker. Many banks charge a fee and require a tracker with a yearly subscription.
- Early settlement charges. Ask what you pay if you clear the loan early.
What to ask your bank
- Which KIBOR do you use, 6-month or 1-year, and what is the spread?
- Is the rate fixed or variable, and how often is it reset?
- What is the total amount I will pay over the loan, including insurance and fees?
- What are the early settlement and late payment charges?
- Can I pay insurance yearly myself, or must it be added to the instalment?
A quick checklist
- Work out 30% of the car's price for the down payment, or more if the car is above about Rs 4.3 million.
- Make sure the instalment is under 40% of your monthly income, counting other loans.
- Compare a 3-year and a 5-year loan in the Pakistan car loan calculator.
- Add insurance, registration and fees to the price, not just the instalment.
- Check that a used car still fits the US-style 20/4/10 rule, which is a good test of affordability anywhere.
Frequently asked questions
What is the minimum down payment for a car loan in Pakistan?
30% of the car's price, under the State Bank's rules. On a Rs 4,000,000 car that is Rs 1,200,000. Paying more lowers your instalment and the total markup.
How long can a car loan be in Pakistan?
Up to 5 years for cars of 1000cc or less, and up to 3 years for cars above 1000cc.
Can I get a car loan for an imported car?
No. Under the SBP rules, banks do not finance imported cars, new or used. Only locally made or assembled cars qualify.
How much salary do I need for a car loan?
Your total loan instalments can be up to 40% of your monthly income. For a Rs 68,165 instalment that means at least Rs 170,413 a month, and banks may ask for more or for a minimum job length.
Is it better to save and buy the car in cash?
On the example car, buying in cash saves about Rs 1.3 million in markup. If you can save the price in a reasonable time and don't need the car urgently, paying cash, or borrowing as little as possible, is almost always cheaper.
This article is for general education and is not financial advice. Rules, rates and products vary by lender and country. See our disclaimer.
