One of the most popular loan products in Malaysia is the car loan – helping people realise their dreams of independent 4-wheeled transportation since when they were launched.
Buying a car in Malaysia isn’t the cheapest thing to do – and with jobs and salaries being what they are today, any financial help is welcome. Banks and lenders have designed specific loan products to help you buy a car and not take so much of a financial hit.
Part-financing, flexible EMI options, affordable rates of interest, and good loan terms are making these car loan products way too tempting for first time car buyers, but there are pitfalls and places where you could mess up, so here’s a guide to taking and using a car loan in Malaysia.
- Make sure it’s not a Hire Purchase agreement
- A better credit rating means more favourable interest rates
- Loan Term
- Consider Depreciation
- Consider Gap Insurance
There’s a difference between car loans and hire purchase agreements. A car loan, once used, transfers the ownership of the vehicle onto your name and once the EMIs are all paid off, nullifies the part of the contract that says the car can be repossessed. If you default on any EMI payment, the bank will at most apply a penalty charge and you’ll have to pay a bit more. If you run into financial difficulties with a car loan, you can sell the car and transfer the loan paying obligation onto someone else, or make an arrangement to that effect.
Under a hire purchase agreement, however, you will effectively only hire (or rent) the car out for the period in which you finish making payments. After all the payments have been made, the car gets registered onto your name. The drawback here is that if you even miss one payment – the car can be repossessed by the seller (you don’t just get away by paying a little extra penalty or interest amount). You can’t even sell the car and transfer the liability, as the car is not registered on your name.
Experian and Equifax are the two most well recognised and widely used credit rating agencies in Malaysia – and a good credit rating on either one of these platforms means that you will receive a lower and more affordable rate of interest – as the bank will have a sense of safety knowing that you can be trusted to repay your loan.
Request your credit rating history from either Equifax or Experian and see whether it’s going to get you a better rate of interest, and decide then on which car you wish to purchase. You might just be able to get a higher loan amount sanctioned on better terms with a good rating, so you can increase the budget that you’d planned and buy a bigger, better car.
You can choose to pay a higher amount regularly for a short period of time, or a smaller amount regularly for a longer period of time.
Car loan tenures are usually between 18 – 36 months. The shorter the tenure, the larger the monthly sum you’ll pay and vice versa – but remember that the overall total does not remain the same with different tenure option. You may end up paying a larger total amount in the case of longer tenures, but it will take the pressure off your monthly expenditure. If you don’t mind taking a hit every month for a shorter tenure, however, consider a shorter term option.
If you are the kind of person who gets bored of your car too quickly, and likes to keep upgrading – you’ll need to do a little more homework before taking a loan. Needless to say you’ll need a loan for a shorter term, but you’ll also need to consider the effect of depreciation on your vehicle. You won’t be able to sell it for nearly the same price as you purchased it, so consider the cost of the old car, the financing option you’ve chosen and the cost of the next car you wish to purchase – and the loan option for that car as well.
This is different from regular auto insurance that protects you in the event of a crash. This gap insurance pays you the difference between what you paid for the car when purchasing it, and the insurance amount that you receive in the event of a crash.