Things to Know About Car Loans in Malaysia

1. Interest Rates

Interest rates is applicable to all types of loans by the lender, and vehicle loans has no exception. The rates set for car loans are partly based on 2 main vehicle-related factors, firstly, if it is a national or foreign-made (brand) and second, if it is a new or used car. Generally speaking, the interest rates of national and used cars are relatively high.

Of course, these are not the only factors affecting interest rates. Loan amount and term, reference interest rates, the credit history and status of the borrower, the bank-dealer agreement and promotional activities are also important determinants.

Most people choose fixed-rate loans and pay off their loans at a fixed rate every month. Please note, however, that these loan types mean that the interest is calculated on the basis of the principal, rather than reducing balance.

2. Down-payments and Margin of Financing

I’It's a good idea to put a down-payment for the loan if you're able as you'll benefit from borrowing a smaller amount, and thereby paying less in total interest costs.

Think about it, although the annual interest rate is usually lower for larger loan amount (within a certain range), but on the whole, you still have to pay more interest. If you don't have the funds or prefer investing your down-payment elsewhere, you might be able to obtain a 100% margin of financing if eligible for special loan schemes.

Otherwise, the minimum requirement of car loan is at least 10% down payment for new cars and at least 20% for used cars.

3. Guarantors and Collateral

While some banks do require a guarantor, others do not. 2If you're not too confident with your financial situation, it might better be better to find a guarantor to help get your loan approved and possibly even, even obtain better rates.

Most banks will not request for a guarantor, because your car loan is technically supported by collateral: that is, the car you are buying. If you break the contract, they will take back your car.

However, despite this, in such bad economic period, banks realize that cars will depreciate over time, and poor maintenance could make car almost worthless. In order to safeguard their interests, they still required a guarantor.

4. Loan Tenure, Repayments and Early Settlement

How long do you need to pay off the loan? Well, that's where loan calculator tool comes in handy. It can help you run repayment simulations, and help you calculate a suitable time frame to settle the loan.

In Malaysia, you may apply for a car loan of at least one year to at most 9 years. Depending on your loan amount and interest rate employed, your monthly repayments will be bigger for shorter-tenured loans.

Depending on the type of loan, you may save money by settling in advance. However, if you have a fixed interest rate, you need to calculate it carefully to ensure that your rebate (if any) is reasonable.

5. Insurance and Road Tax

It’s compulsory to purchase insurance and road tax for your vehicle in Malaysia, thus you should remember to include this amount so you’ll have no surprises in terms of how much you’ll need to borrow or make in down payment.

Insurance payments are usually much higher than road tax payments but you can check with your vehicle sales person to help you estimate the insurance premiums.

You will often find that the bank giving you the car loan will arrange insurance for you with their selected insurers so if you want to find one of your own, do ask them if it will be possible. Generally they will advised you to purchase for their selected insurer for the first year and you may change to your preferable insurer on subsequence renewal.

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