What is a Car Loan?
Car Loan is a financing facility provided by banks and financial institutions to individuals who need a financial help to purchase a car. A car loan is also known as a hire purchase. A hire purchase facility provides funding to individuals for car purchase and the ownership gets transferred to the individual once he/she makes the full repayment back to the bank or the institutions.
Constituents of a Car Loan
There are the following four basic building blocks of a car loan:
- Financing Amount or Loan Amount: The most important thing a customer should keep in mind before opting to apply for a car loan is the amount of loan. The car loans provide customers with a margin of financing that directly depends upon the price of the car. Before deciding to apply for a car loan, a customer should see if the car loan he/she is choosing for fulfils his/her financing amount requirement.
- Interest Rate or Profit Rate: Once an individual finds the car loan that is the best fit in terms of financing amount, the next thing he/she should take in account is the interest or profit rate associated with the loan.
- Financing Tenure: An individual should also keep the financing tenure available with a car loan into account. Before choosing a car loan package, an individual needs to evaluate his/her financial standing and pick a package according to his/her repayment capacity.
- Terms and Conditions: An individual also should read the terms and conditions of a loan before opting for one. He/she also needs to understand fully about the requirements of the loan package and see if it’s the best suited for his/her needs.
Types of Car Loans
Types of Car Loans Based on the Principle of Financing
Based on the principle of financing, there are two types of car loans available for customers:
- Conventional Car Loan: A conventional car loan provides an individual with funds to purchase a car. It covers all new, used and unregistered and reconditioned cars. The margin of financing with a conventional car loan is up to 90% of the vehicles price. A conventional loan comes with a flexible repayment tenure that can be extended to 9 years.
- Islamic Car Loan: Islamic car loans are based on Shariah principles of financing. The ownership of the car is transferred to the individual once the repayment is completed. The Islamic car loans come with a high margin of financing, i.e. up to 90% to 100% of the car’s price.
Types of Car Loans Based on Car Type
Based on the type of car, there are 3 types of car loans available:
- New Car Loan: This loan scheme covers all new national and non-national cars. The margin of financing for a new car loan is respectively higher than other car loans.
- Used or Old Car Loan: This type of car loan covers used cars. Both national and non-national cars come under this category. The margin of financing with this car loan is relatively lesser than that of a new car loan. The margin of financing also depends upon the age of the car.
- Unregistered and Reconditioned Car: This type of car loan covers the unregistered and reconditioned cars as well as the imported cars. The financing margin with this car loan depends upon the age of the car.
Who can Apply for a Car Loan
The eligibility criteria of a car loan are as follows:
- Individuals applying for a car loan must be at least 18 years old at the application date.
- Individuals must be Malaysian citizens.
- Any salary earning individuals, self-employed individuals, public listed companies, private limited companies, sole proprietorships, and partnerships can apply for a car loan.
- The car loans that are available for foreigners require them to be accompanied with a local guarantor.
Documents Required for a Car Loan
The set of documents required may vary from applicant to applicant. The following are the lists of documents required to be presented by the applicants:
For salary earning individual applicants:
- Copies of both sides of NRIC.
- One copy of driving license.
- Salary slips’ copies for the last 1-6 months (depending upon the loan package).
- Bank/passbook statement for the last 1-6 months.
- Latest EA form or EPF statement.
- Employment confirmation letter.
For self-employed individuals, sole proprietors, and partners of a partnership:
- Copies of both pages of NRIC.
- One copy of driving license.
- Business registration certificate.
- Latest Borang/BE with the validated receipt of tax payment LHDN.
- Bank statement for the 3 to 6 latest months.
- A relevant business income proof document.
For private limited companies:
- Latest form 9, 13, 24, and 49.
- Bank statements for the 3-6 recent months.
- Certified true copies of Articles of Association and Memorandum.
- Profile of the company’s director
- Management’s profile.
- A copy of the Certificate of Commencement of Business.
For public listed companies:
- Latest audited annual financial statement.
- Latest form 24 and 49.
For foreign applicants:
- One copy of passport.
- One copy of contract letter, or
- One copy of employment letter.
For purchase of an old/used car:
- One copy of seller’s NRIC and one copy of seller’s driving license if the seller is an individual.
- Performa invoice and registration card.
How to Apply for a Car Loan
- An individual can apply for a car loan by visiting the nearest branch of the bank or financial institution offering a car loan.
- The car loan application request can also be put to the bank via the bank’s/institution’s customer service numbers.
- Individuals can also apply for a car loan via the official website of a bank or institution offering a car loan.
Car Loan Fees and Charges
The following are the major fees and charges an applicant has to bear with a car loan:
|Monthly instalment||For fixed interest/profit rate: M = [P + (P x R x T)] / t Where M = Monthly instalment; P = Loan amount; R = Interest/profit rate; T = Loan tenure in years; t = Loan tenure in months.|
|For floating rate of profit/interest: Depends upon the loan amount, loan tenure, and the rate of interest/profit.|
|Late payment charges (for conventional car loan)||Up to 8% p.a. on the overdue monthly instalment amount.|
|Late payment charges (for Islamic car loan)||During the facility period: 1% p.a. of the overdue instalment amount.|
|After the facility’s maturity: Based on IIMM (Islamic Interbank Money Market) rate.|
|Stamp duty||As per the Stamp Duty Act 1949.|