Most people will usually require some form of financing when it comes to purchasing a car; even if you could afford to pay it all off using cash, that's a huge chunk of money down the drain, which could affect your other financial obligations.
If you’re reading this article, chances are high that you're probably a first time buyer. Arm yourself with these key points, so that you don't go in blind, or worse, get cheated when getting a car loan!
1. Loan Amount
Normally, car manufacturers require a 10% down payment on the purchase price of your chosen car. Lenders will then allow you to take a loan up to 90% of the seller’s invoice.
If you have extra money on hand, you can choose to pay more for the down payment and reduce your overall loan amount.
If you're thinking of purchasing a used car, the amount you can borrow, also know as your margin of financing, may be significantly lower.
2. How long can I take to pay off my car loan
The financing tenure is the agreement period in which you make regular repayments. Most lenders will allow between a 5-9 year tenure (60-108 months).
Generally, the longer the financing period, the lower the repayments but the higher the total interest charged.
3. Type of vehicle financed
There are four types of vehicles in which you can apply for motor financing in Malaysia - new national cars, foreign cars, reconditioned cars, and used cars (national and foreign). The rates will vary depending on the car nationality, model, loan amount, and financing period.
Interest rates for car loans are normally charged at a flat rate. This means that interest is charged on your full principal over the tenure.
The interest cost for a flat interest rate loan product is easy to calculate, you just multiply the rate with the number of years and the initial amount borrowed (principal).
You have a hire purchase loan of RM30,000 at 3% flat p.a. for 7 years - that would mean 84 monthly instalments. Your total interest charge will be 3% x RM30,000 x 84 months = RM6,300. In total, you will be paying back roughly RM36,300 over 7 years - given that your rates have not changed.
4. Insurance or Takaful coverage
An Insurance or Takaful policy is compulsory under the Hire Purchase Act, 1967. You are required to keep the vehicle insured until full payment of your car loan.
To renew your insurance or Takaful policy, you will need to inform the bank 14 days before expiry. Easier still, you can call MyEG to assist you by providing the information below:
- Vehicle Registration No and IC
- Vehicle type
- CC - Engine Capacity
- Year of Manufacture
- Sum insured
- Windscreen (Optional)
5. Late payment charges
If you do not pay your monthly installments on time, the bank will charge an 8% p.a. penalty on the amount overdue calculated daily. For Islamic financing, a 1% p.a. compensation fee will be charged.
Bear in mind that until you have fully paid off your loan, the bank will act as the rightful owner of the vehicle and may be repossess your car if you continue to miss your monthly repayments for 3 continuous months!