How the instalment is worked out
Most bank and leasing loans are amortized: you pay the same amount every month, and each payment first covers that month’s interest on the balance, with the rest reducing the principal. Early payments are mostly interest; later ones are mostly principal.
The monthly payment is P × r ÷ (1 − (1 + r)−n), where P is the loan amount, r the yearly rate ÷ 12 and n the number of months.
Tips
- Banks in Pakistan often quote KIBOR + a spread; enter the total yearly rate (for example KIBOR 11% + 3% = 14%).
- Paying a little extra each month cuts both the term and the total interest; check that your lender allows early repayment without a penalty.
- Islamic financing (Murabaha, Diminishing Musharakah) uses profit instead of interest, but the monthly rental is worked out the same way.