Early Settlement Calculator
Find your outstanding balance and how much markup you save by paying your car loan off early.
Indicative. Banks calculate the settlement figure on the exact outstanding principal on the settlement date, plus any overdue amount and charges. Ask your bank for a written settlement letter before you pay.
How early settlement works on a car loan
Car finance in Pakistan is calculated on a reducing balance, so each installment pays the markup due on what you still owe and the rest goes towards the principal. Early on, a large share of every installment is markup; near the end, almost all of it is principal. When you settle early you pay off the remaining principal in one go, and all the markup that would have been charged on it in the months ahead simply disappears. That is the saving this calculator shows.
The timing matters a great deal. Because markup is front-loaded, settling in the first or second year saves far more than settling a few months before the loan ends. Try changing "installments already paid" to see how quickly the saving shrinks.
The early settlement charge
Most banks charge a fee when you repay before the agreed term, usually expressed as a percentage of the principal you prepay. The rate varies by bank and product: some charge nothing after a minimum period, some charge a flat percentage throughout, and some reduce the charge as the loan ages. The figure is written in your facility offer letter or the bank's schedule of charges, which is published on its website. If the charge is high and you are close to the end of the loan, the saving may not be worth it, and the calculator will tell you if the fee wipes out the benefit.
Islamic products handle this differently in form. Under Ijarah or Diminishing Musharakah you are not repaying a loan but buying the bank's remaining share of the car, and the price for that is agreed at settlement. The economic result is similar, so the calculator still gives a useful estimate.
Partial prepayment: shorter loan or smaller installment?
If you have a bonus or some savings but not enough to clear the whole loan, most banks accept a partial prepayment. You then choose between keeping the same installment and finishing earlier, or keeping the same end date and paying less each month. Finishing earlier saves more markup because the balance falls faster; lowering the installment frees up monthly cash and improves your debt burden ratio if you plan to apply for another loan. Banks often set a minimum amount for partial prepayment and may limit how many you can make in a year.
Before you settle
Ask the bank for a settlement letter that shows the exact amount, then pay it and collect the release documents: the no-objection certificate, the original registration book and, for a car registered in the bank's name, the transfer letter. Take these to the Excise and Taxation office to have the bank's lien removed or the car transferred to you. Until that is done, the car is not fully yours on paper.
Frequently Asked Questions
Can I pay off my car loan early in Pakistan?
Yes. All major banks allow full early settlement and most allow partial prepayment, usually with an early settlement charge set out in your offer letter.
How much is the early settlement charge on a car loan?
It differs by bank and product, commonly somewhere between 0% and 5% of the amount prepaid. Some banks waive it after a set period. Check your bank's schedule of charges.
Is it better to prepay a car loan or invest the money?
Prepaying earns you a guaranteed return equal to your loan rate, minus the settlement charge. If you cannot reliably earn more than that after tax elsewhere, and you keep an emergency fund, prepaying is usually the better choice.
What documents do I get after settling my car loan?
The bank gives you a no-objection certificate and the original registration documents, and a transfer letter if the car was registered in its name. You then visit the Excise and Taxation office to remove the lien or transfer the car.