Why everyone is getting a car on installments, but should you?

In 2021 I financed a Cultus. The price then was 19 lakh 70,000. That same Cultus today sells for around 44 lakh, more than double, and the one I actually bought is worth somewhere near 33 or 34 lakh now, close to eighty percent more than I paid, in the space of four years. On paper that looks like the smartest money decision I ever made. It was, in fact, the biggest financial mistake of my life.

Both of those are true at once, and the gap between them is the whole point. The car went up. The decision was still a disaster, because the price of the car and the deal underneath it are two completely different things, and I had mixed them up the way most people financing a car right now are mixing them up.

Getting a car on installments has become almost the default. The cheapest new car in Pakistan runs around 30 lakh, and almost nobody has that in cash, so you put down what you can, the bank buys the car on your behalf, and you pay it back in small monthly pieces over three, four, five years until it finally carries your name. I am not here to talk you out of that. I am here to walk you through the parts no bank and no salesman will, so that if you do it, you do it with your eyes open.

The rule that's true everywhere except here

If you listen to any of the big Western money experts, Graham Stephan, Dave Ramsey, Morgan Housel, any of them, they will all tell you the same thing. Never take a loan against a depreciating asset. A new car loses about twenty percent of its value in the first two or three years.

So if you borrow to buy one, then by the time you've finished paying the loan off, three or four years later, the car is already worth a fifth less, and on top of that you've paid, say, ten percent in interest on the whole amount. You've bought the car expensive twice over, and the day you sell it you're already at a loss.

That is completely true. For the West. Pakistan is one of the very few countries in the world where the thing runs backwards, where a car can behave like an appreciating asset, something you buy today and sell later for more. Almost anyone who financed a car between 2021 and 2024 made good money on it. My own Cultus is the example, and I'll keep it to my own, because that's the honest one.

To understand why, you have to understand how our auto sector actually works. The parts are imported. We bring them in from outside, assemble them here, and hand you a finished car. So the moment the rupee weakens, those imported parts get more expensive. A part that cost one dollar was 250 rupees when the dollar sat at 250. When the rupee falls and the dollar becomes 300, that same part now costs you 300. More money leaves your pocket for exactly the same thing.

And no company swallows that loss. They pass it straight down to the consumer, to people like you and me. That is why a car that cost 19 lakh 70 in 2021 is 44 lakh now. Then remember what those years actually were. In 2021 and 2022 we were on the edge of default. If the IMF had not stepped in with a billion dollars, we would have gone over. Trade was badly out of balance, we were importing far more than we exported, and the rupee fell fast. When the rupee falls that hard, car prices climb behind it.

But look at where we were when I made this video, in late 2025. Inflation had come down a long way. Interest rates had come down with it. The outlook for the next couple of years looked better than it had in a while, and if that holds, the rupee doesn't fall the way it did, imported parts don't keep getting dearer, and car prices stop climbing the way they were. On top of that, the market is no longer a monopoly.

For years it was Toyota, Suzuki and Honda, three kings, and that was mostly it. Now MG is here, Haval is here, Haval has even brought a plug-in hybrid, and Sazgar, which builds Haval here, walked straight into the SUV gap and took a big slice of it, by giving people the features the old players had decided Pakistanis didn't deserve. Real competition forces those old players to keep their prices in check. So put it together, a steadier rupee and genuine competition, and the next three or four years may not hand you the price rise the last three did.

Which flips the whole thing. Buy a car on finance today and you may be doing exactly what Dave Ramsey and Graham Stephan warned about, taking a loan against something that now sits still or slowly loses value, and paying interest on top. The very rule that didn't apply to Pakistan may be starting to apply. Maybe our cars won't fall the way American cars fall, but the easy years look done. And nobody can answer this for certain, because it hasn't happened yet, and uncertainty isn't something anyone gets to settle in advance.

Here is the part almost everyone got wrong, myself included. The people who financed in 2021 tell themselves the decision was smart because the car doubled. But the car doubling and the deal being good are two separate bets, and only one of them paid off.

My Cultus rose nearly eighty percent, and in those same years the deal underneath it very nearly broke me. The rising price quietly covered a bad decision, so a whole generation now believes financing a car is clever, when what actually happened is that the market bailed out a mistake. Take the price rise away, which is what the next few years may do, and the mistake is all that's left.

The part of the deal that almost broke me

So say you've decided to finance anyway. Before anything else, there's the choice between conventional and Islamic financing, and I'll tell you plainly to go Islamic. I'm not going to get into the how and why of the two here, that's a separate discussion, just know that's the direction I'd point you in. Meezan is an Islamic bank outright. Most others, HBL, Bank Islami, run both a conventional and an Islamic side, so you ask, directly, and you make sure the one you're signing is the Islamic one.

Then you shop the banks properly. Take the car you want and get a written quotation from each one, this much down payment, this much a month, for this many years. They hand you a page with all of it laid out. Collect those pages from several banks and compare, because the installment isn't the same everywhere. And check one specific thing. Does the bank allow a balloon payment. That means if three or four lakh lands in your hands from somewhere, you can throw it at the loan and bring your monthly installment down.

Some banks allow it, some don't. Go with one that does, even if its installment is a few thousand higher, because if you get locked into a plan with no balloon payment, you can't clear it early without paying a lot more to do it. A slightly higher installment you can attack whenever money comes in beats a cheaper one you're stuck inside.

Then the one that cost me the most. Is the deal on a fixed rate or a flexible one. This was my single biggest mistake in 2021. I didn't even know flexible and fixed rates were a thing. I took a flexible rate, or rather the bank sold me one, and I had no idea what it meant. A flexible rate means that every six months they look at where rates are and adjust your installment to match. Rates go up, your installment goes up. Rates come down, it comes down.

And to be clear, when I talk about a rate moving here, I mean the way it works inside the Islamic structure too, not only conventional interest. The full details of that belong in another video.

And I had walked in at the worst possible moment. I financed the car when interest rates were sitting right at the bottom, in 2021, and from there they climbed and climbed. Every six months my installment was reset upward. It started at 18,000. In the space of a few months it went all the way to 32,000. I sat with my head in my hands, watching a number I couldn't control keep rising, and the anxiety and the stress of it came from one thing only. I had signed a flexible plan.

When I made this video, rates were back near the bottom, maybe a little more to cut but close to it. So it was a reasonable enough time to buy, on one condition. Take a fixed rate, never a flexible one, so you don't fall into the same loop I did. When rates are already low, the only direction left is up, and a flexible plan means they take you up with them.

Once you've picked the bank and the plan, the paperwork is simple. Bank statement, CNIC, proof of employment, salary. But there's a trap in the salary part that I learned the hard way. My work back then was commission based. My basic salary in 2021 was 15,000 rupees, and everything real sat on top of it as commission, decent commission, because the income was in dollars. When the banks saw a 15,000 basic with a fluctuating commission above it, most of them said no.

From their side it made sense. They lend you money to make money, that is their whole business, so before they lend they weigh the risk that you won't pay on time. A 15,000 basic with the rest bouncing around looked, to them, like a man who might not. About six banks rejected me on exactly that. The one that finally said yes only did so after we adjusted the salary slip.

We enhanced it, honestly enough. I knew a lakh and a half was coming in every month no matter what, so we fixed the basic at a lakh and a half by breaking it into a basic plus a house allowance plus a travel allowance and a couple of others, and put everything above that, the months it was 1 lakh 70 or 2 lakh, down as commission. That got it accepted.

And even then they handed me the worst plan I've ever seen, seven years, flexible, a deal that was a clear win for them and the worst possible one for me. I took it, because I didn't know better, and because I just wanted the car.

Which car can you actually afford

Now, which car can you actually afford. The Western rule says your installment should sit between fifteen and twenty percent of your salary. If your salary is a lakh, that's an installment of 15 to 20,000. The problem is that no such car exists here. There's no car in Pakistan, even if you put forty or fifty percent down, whose installment falls below 20,000. Follow the global rule faithfully and you simply never buy a car. So the rule has to be rebuilt for here.

I had to redo this math many times before it made sense, and here is roughly where it landed. Take the cheapest car we have, the Alto. On a four-year plan with forty percent down, the installment comes to about 46,500. If your salary is a lakh and a half, that 46,500 is around thirty-two percent of it, well above the fifteen-to-twenty the experts quote, and this is still close to the floor. So the honest ceiling here is nearer thirty percent than twenty.

But I want to be careful, because I can't hand you thirty percent as a rule either. It might work for you today and stop working next year. Your expenses are yours. Your income growth over the next two or three years is something only you can see. When I financed my car, the installment started at around thirteen percent of my income, which was fine. Then the flexible rate dragged it up toward twenty-four percent, and that's where it stopped being sustainable.

I was lucky. My father gave me a loan, I paid the car off, and I paid him back. Not everyone has that, and if I hadn't, that installment would have kept grinding on me. So I can't stand here and tell you fifteen percent, or twenty, or thirty. To even find your own number, go to the PakWheels finance calculator, put in thirty, forty, fifty percent down against three, four and five year plans, and see what installment each one produces. Once you land on a figure that feels safe, that's where the real test starts.

The economic detective and the five-year test

The first thing my own experience taught me is that you have to become a bit of an economic detective. You don't need a PhD in economics and you don't need to sit with an expert. You just need a basic read on where the economy is standing and where it's likely to go. Where are interest rates in the cycle right now, and where will they head over the next few years. If I'd understood even that much in 2021, that rates were at the bottom and the only way out was up, I would never have taken the car. I didn't understand it, so I did.

And this matters even on a fixed rate. Say you lock a low installment today. If rates climb because inflation has jumped, then everything else in your life gets more expensive at the same time, the children's pampers, the school fees, the petrol you put in the tank, and that fixed installment you were so pleased with starts to squeeze you anyway, because the rest of your money is now stretched thin. Reading the cycle isn't about the car alone. It's about the whole life the car sits inside.

The second thing is what I call the five-year test. You imagine yourself not today, but three and five years out, and you ask, honestly, whether you'll still be able to pay this installment then. Because your life won't sit still. If you're not married, you may be by then. If you are, there may be children. If there are children, there may be parents to support. Your expenses only climb. So if the installment is 50,000 today, can the version of you three years from now, with all of that added on, still carry it.

If you have no plan for your income to grow and your expenses are certain to, then two or three years in, that installment will start to hurt. And until you can pass that test, I don't think you should finance anything, because the anxiety will take more from you than the car gives back. Your quality of life drops, your work suffers, and the income you might have grown suffers along with it. Honestly, it's better to ride a motorcycle with a calm head than to drive a car with all of that sitting on your chest.

I can't run that test for you, and neither can any expert. Walk into a financial adviser and you'll, without meaning to, hide the one detail that would change his answer, the thing you quietly overspend on. He builds his plan on what you told him. You know the rest. Which is why no financial expert on earth can tell you whether you can afford this car. Only your own life can, and you're the only one who has seen all of it.

The strategy everyone is repeating right now

There's one more debate I promised to give you my honest opinion on, because it's everywhere right now. It goes like this. Even if you have the full cash to buy the car, don't. Put a small amount down, finance the rest, and take the money you would have spent and invest it, so that your investment earns enough to cover the installment for you. On the surface it sounds clever. And for the right person, it genuinely is.

If you actually know how to invest, where to put money, when to put it in, when to pull it out and book the profit, then yes, this is a brilliant move and you should already be doing it. Done well, the money you were going to sink into a car could grow fifty or sixty percent in a year or two. But two things sit inside this strategy that the people repeating it never mention. One is your actual skill as an investor. The other is what you value more, the money, or your peace of mind.

The man I treat as my teacher on this is Morgan Housel. If you haven't read his Psychology of Money, you should. His whole point is that you should do the things that give you peace of mind, and put that peace at the very top. He keeps the greater part of his own wealth, something like seventy percent of it, sitting in cash. It earns him almost nothing, and he knows that, but it gives him something a return can't. The freedom to look at his account on a bad day and know he isn't forced into anything he doesn't want to do.

For me it's the same. I could tell myself a stock will jump thirty percent in three months, but if holding it means I'm checking charts all day, carrying the risk at the back of my head, letting it eat into my business and my family and my own peace, then no. It isn't worth it. Peace of mind sits at the top for me too. I'd rather have a calm ten percent than a stressful thirty with a layer of depression underneath it.

And there's a reason to be humble about the whole thing. When you invest, imagine you're sitting in a car that's driving itself. You aren't steering. Where your money goes depends on the economy, on what policies the country makes, on how the big players react to them, and none of that is in your hands. Nobody has ever managed to predict it. So the one thing actually in your control isn't the market. It's you. Your knowledge, your skills, what you can build and sell to raise your own income. That's where ninety-five percent of your attention should go, because that's the only part you steer.

So I won't do it, and yet I won't tell you not to. If the strategy makes sense to you, if you know markets, if you know your own anxiety and can carry it, then you absolutely should. It's the best strategy there is, for that person. It's simply never the answer for me, and it may not be for you. Both of those are true, and I'm not going to flatten them into one verdict to make this tidier than it is.

The question no one sat me down for

Search car financing anywhere and you'll find which bank to walk into and which documents to carry. That's the easy part, and the bank will tell you itself. The hard part is the one nobody sits you down for. Is this right for you, at this point in the cycle, and at this point in your life. When I financed my car, no one gave me that answer, and I wish they had.

So before you sign, hold the two things apart the way I failed to. The car might go up, it might sit still, and either way that's a bet on the economy you don't control. The deal underneath it, the rate, the plan, the size of the installment against your real life, that's the bet you do control, and it's the one that decides whether the installment sits lightly on your life or slowly grinds it down. Get that one right first. The car can wait until then.