When you decided to buy yourself a car and realise that you might not have the money to pay for the car, you tend to start thinking about taking a car loan. Before you can go and apply for one, there is some things that you need to know about how the loan works and how you can go about getting one. The basic idea of a car loan is that you ask a bank to finance the car and they offer you a certain percentage of the cost of the car. The balance is paid by you and the amount that you borrow, is paid back to the bank over a period of time, in easy to pay monthly instalments. You will also have to pay in interest on the amount you borrow along with paying back the principal. There can also be restrictions on the cars you can buy with these loans and the loans can also offer a lot of features to you but the main thing always has to be that you know what you are getting into.
Basics of car loan
To help you understand the basics of how car loans in Malaysia work here are some of the first few things that you need to look at.
- Types of loans
- Conventional car loan:
- Islamic car loan:
- 100% car loan:
- Used car loans:
- Cars that can you take a loan for
- How much can you borrow?
- Eligibility criteria
- The interest rates
- Repayment periods
- The monthly instalments
- Prepayment of loan
There are lot of different types of loans that are available in Malaysia. Some of these are:
This is the most common type of car loan available. With it you can have the bank finance any car of your choice and pay the loan back over a period of up to 9 years, at an interest. Some of these loans will also offer to cover the cost of taxes and insurance due for the car.
Islamic car loans follow various concepts of Islamic banking such as Shariah. They don’t charge an interest and offer car purchases on a hire purchase basis where the bank buys the car and rents or leases it out to you till such time as it’s paid for.
These loans don’t cover the entire cost of acquiring the car but cover the entire on-road price of the car. They may or may not help with the insurance and the taxes.
These loans are meant exclusively for used cars and work in much the same way as conventional and used car loans. They only differ in terms of repayment periods and interest rates and require cars to be of a certain age.
The cars that can be funded using these loans can be brand new or used one as long as they are not more than 8 to 10 years old. The cars can either be those that are manufactured in Malaysia or those that are imported from other countries.
The amount that you can borrow can change from one bank to another but the most common loan amount can be 90% of the cost of the car. In case the car is a used one then the amount can change depending on the age of the car.
The eligibility criteria decides if you can be given the loan or not. The main things covered under this heading are the age of the borrower along with other factors like the monthly income and employment statues (salaried or self-employed).
The interest rates levied on the car loan can change depending on the bank that is offering the loan. It is levied on an annual basis and can be different for new cars and used cars. Some banks offer a fixed interest rate while other offer a variable interest rate linked to the base lending rate of the bank.
The repayment periods offered by most banks is up to 9 years, with the minimum tenure being about 3 years. In the case of very old used cars, those that are more than 6 years old, the repayment period can be shorter.
The monthly instalment is the amount that is to be paid towards the loan every month and is decided based on the amount that has been borrowed and the tenure for which it is borrowed. In most cases it is a fixed amount but if the interest rate is a variable one then the monthly payment can differ based on the bank lending rate.
A prepayment of a loan happens when you payback the entire loan amount before the tenure is over. With many banks the facility to pre-pay loans comes with not extra charges but some banks may have conditions attached to it. They can be things like a fee charged for the prepayment and a time period before which prepayments won’t be accepted.
Taking a car loan to pay for a brand new car is not a decision that should be taken lightly. It requires a commitment on your behalf and can turn into a burden if it has not been considered carefully. Apart from this, it is also a good idea to go over the bank's terms and conditions regarding the loan before actually applying for it. Another advisable practice is to shop around since you might find some great deals on loans that you might not have been aware of.