What Affects Your Car Loan Interest Rate

Updated: 15 October 2026

Your car loan rate depends on the car you pick, its age, how much you pay upfront and your income, debts and credit record. The rate to compare is the effective interest rate (EIR), the yearly rate on what you still owe. Published rates for a new car in October 2026 run from 4.11% to 6.75% a year, depending on the bank and the car. On an RM80,000 loan over seven years, that difference costs RM8,408.50 more in interest. You can change most of what sets your rate before you apply.

What You Can Change Before Applying

What You're Signing When You Take A Car Loan

A car loan in Malaysia is a hire purchase agreement. That's the legal term for a loan where the bank buys the car on your behalf and you pay the bank back in monthly instalments. Until you make the final payment, the car legally belongs to the bank. That's why the bank can take it back, or repossess it, if you stop paying.Islamic hire purchase is known as AITAB (Al-Ijarah Thumma Al-Bai'). It uses a different contract structure, and the bank quotes a profit rate instead of an interest rate.

For more on the agreement itself, read What To Check Before You Sign A Car Loan.

How Interest Is Charged

Until June 2026, banks charged interest on the full amount you borrowed for the whole tenure. This is called a flat rate. On an RM80,000 loan at 3% per year (p.a.) over seven years, that meant interest on RM80,000 every year. That was true even three years into the loan, when you'd already repaid part of it. Paying off your loan early, which banks call early settlement, gives you only a small refund of interest. That's because of the Rule of 78, which charges most of the interest in the early years.

From 1 June 2026, the new hire purchase rules require new car loan agreements to charge interest only on what you still owe. This is called reducing balance. By 18 September, 14 of the 20 banks had switched, and the other six have committed to finish by 31 December 2026. Bank Negara gives hire purchase providers until 31 March 2027 to complete the change. The Domestic Trade Ministry hasn't named the 14 banks, so ask which method your bank uses before you sign.

Existing agreements keep their original terms. If you settle early, you can ask the bank to use the reducing balance method instead of the Rule of 78 to work out what you owe. The bank must already offer that method.

Why The EIR Looks Higher Than The Flat Rate

For the same loan, the EIR is always higher than the flat rate. Bank Negara's own example shows that a 3% flat rate on a nine-year loan works out to 5.5% EIR. The monthly instalment and the total interest stay the same.

A lender that follows the new rules must quote the EIR rather than a flat rate. The Hire-Purchase (Terms Charges) Regulations 2026 also set a maximum EIR on fixed-rate car loans. The maximum is 17% p.a. for tenures up to five years and 16% p.a. for longer ones.

Why Your Rate Might Differ From The Advertised One

The rate you're quoted depends on whether the car is new or used. Banks publish two kinds of rates. Bank Simpanan Nasional (BSN) publishes an "as low as" rate, the lowest it gives anyone, so you may pay more. CIMB publishes an indicative rate for foreign and national cars, a guide to what it usually charges for that type of car. The rate you're offered is set after the bank looks at your application and the car, and it can be higher or lower.

At either bank, your own rate also depends on your down payment and credit record. Other banks quote different rates.

These come from BSN's MyAuto page for new cars, BSN's rates page for used cars and CIMB's rates page, read in October 2026. BSN's rates are fixed and charged on the amount you still owe, which is what an EIR measures. They depend on the type of vehicle and your credit. BSN only lends to staff of employers on its list, after three months in the job. CIMB's own worked example, a RM43,480 loan over nine years at RM543 a month, is 6.95% EIR

The Type Of Car You're Buying

National cars, meaning Perodua and Proton models, cost less than most non-national cars. A new Honda CR-V starts at RM178,200, for example, while a new Perodua Myvi starts at RM46,500.

Don't assume a national car gets the lower rate. In the rate table, CIMB charges less for foreign cars than for national cars, both new and used. A lower rate on a bigger loan can still cost you more in total interest. Compare the total repayment as well as the rate.

New Car Vs Used Car

Used cars carry higher rates than new ones, and as the car gets older, banks lend less money and for a shorter tenure. An older car is already worth less and is harder to resell. If the bank repossesses the car, it may not sell for enough to cover what you still owe. How old a car a bank will finance varies from bank to bank. Public Bank'srates and charges page lists cars up to 12 years old. For cars more than 10 years old, financing is up to 75% over 36 months.

A higher rate on a used car doesn't always make it the more expensive choice. Take a new Perodua Myvi 1.5 X and a three-year-old 1.5 X over seven years, with a 10% down payment. The rates are CIMB's indicative rates for national cars: 6.75% for the new car and 8.15% for the used one. The new price is RM50,900 onpaultan.org, a car news and price site. The same site also says a three-year-old Myvi keeps about 82% of its value, and 82% of RM50,900 is about RM41,700.

The used car costs about RM44 more in interest but about RM9,200 less to buy. Some rates on our comparison pages are still the old flat rates the banks gave us, so ask the bank for the EIR before you compare. Use our car loan comparison page to work out the repayment on both. Or browse used car loan options for the car you have in mind.

Your Down Payment And Loan Tenure

The down payment is what you pay upfront before the bank covers the rest. You must pay at least 10% of the car's price. Section 31 of the Hire-Purchase Act 1967, which calls it a deposit, sets this minimum on every hire-purchase loan. So no bank can finance more than 90%. The down payment can be paid in cash or in goods, so a trade-in car counts. For used cars, banks such as Maybank finance 85% to 90% of the price, depending on the car's age. Paying more upfront means borrowing less, which lowers your total interest.

In the Myvi table, paying 20% upfront instead of 10% brings the new car's loan down from RM45,810 to RM40,720. The interest falls from RM11,798 to RM10,487.

Some dealers advertise zero down payment deals. Such a deal means the dealer or the bank is covering the down payment some other way, or the loan isn't hire purchase. Some banks do offer up to 100% financing to young graduates, but through a different type of financing rather than hire purchase. Bank Islam's Vehicle Financing-i GradONE, for example, is an Islamic financing based on a sale contract (Murabahah). Ask the dealer how the down payment is being covered, and whether the car's price has gone up to cover it.

Bank Negara caps the loan tenure at nine years. A longer tenure gives you smaller monthly payments but more interest overall, while a shorter one costs more each month and less in total. Try a few tenures on our car loan comparison page to see how the monthly instalment changes before you decide. If you expect to have spare cash later on, flexi car loans let you pay extra when you can.

What Banks Check Before Approving Your Loan

Your credit record is the part that takes longest to fix, so start there. The bank checks CCRIS. It shows your existing loans, credit card balances and whether you've paid them on time over the past 12 months. It may also check your report with a credit reporting agency such as Credit Bureau Malaysia, CTOS or Experian. This covers things like legal proceedings and bankruptcy history, which CCRIS doesn't show. Get your CCRIS report two to three months before you apply, so you have time to fix anything unexpected. Your credit score from an agency like CTOS is built partly from this same history.

A permanent job with consistent payslips looks more reliable to a bank than contract or probationary work. If you're on contract, you may still qualify, but approval can be harder. BSN, for example, accepts contract staff as well as permanent staff. If you've just started working, some banks run car loan schemes for fresh graduates.

Banks also work out your DSR. It's your total monthly debt payments, including the new car instalment, divided by your monthly income. That covers a personal loan, credit card minimum payments and PTPTN. A high DSR is one of the common reasons loan applications get rejected. Check yours with the DSR calculator before you apply, but treat the result as an estimate, since each bank calculates DSR its own way. If credit card debt is raising it, see whether a balance transfer helps.

What To Check Before You Commit To A Loan

Start before you visit a showroom. Work out what car your salary can support. Your budget also needs to cover car insurance, road tax and maintenance on top of the monthly instalment.

Formal pre-approval isn't widely offered by Malaysian banks. Most car loans are processed through the dealer's panel banks, the fixed set of preferred lenders a dealer works with. These banks sometimes offer promotional rates through the dealer, so compare a promotion by its EIR and its total interest over the full tenure. You can still ask a bank outside the dealer's panel for a written quote on the car you want before you go.

• Ask for the final rate and the EIR in writing, so you can compare offers from different banks.
• Ask whether your loan uses the reducing balance method or the Rule of 78.
• Ask what fees or charges apply if you settle the loan early.

You can compare car loans from Malaysian banks on RinggitPlus, including the rates, tenures and eligibility rules each one sets.

Frequently Asked Questions

Can I negotiate my car loan interest rate?

You can negotiate your car loan interest rate. It's easier if you have no missed or late payments, an existing relationship with the bank or a written offer from another lender.

What is the Rule of 78, and is it still used?

The Rule of 78 is the older way of working out early settlement, explained in How Interest Is Charged. The Hire-Purchase (Amendment) Act 2026 abolishes it, though banks can still use it for new loans during the transition period. The remaining banks have committed to stop using it by 31 December 2026, and Bank Negara gives all providers until 31 March 2027.

Can I get a discount if I settle a Rule of 78 loan early?

The banks' associations said in March 2026 that banks will give a goodwill discount if you settle a fixed-rate Rule of 78 loan early. The discount is voluntary. It covers Islamic and development banks too. Not everyone qualifies. You can't get the discount if your account is:

• more than 90 days behind on payments
• under legal action
• under a repossession order
• in a restructuring (changed repayment terms)
• in a formal debt management programme

The bank confirms the exact discount when you ask how much you'd pay to settle.

What happens if I miss a car loan payment?

A missed payment adds a late payment charge and shows on your CCRIS record. BSN charges 8% p.a. on the overdue amount for a fixed-rate loan. Bank Rakyat's Islamic financing charges 1% p.a., which is compensation (ta'widh) up to a limit Bank Negara sets.

Section 16 of the Hire-Purchase Act 1967 sets the steps before the bank can take the car back:

• After two missed instalments in a row, the bank must first send you a written notice. The notice gives you at least 21 days to pay what you owe or return the car.
• If you don't pay or return the car by then, the bank can take it back.
• If you've already paid more than 75% of the car's cash price (the price without interest), the bank needs a court order first.

If you think you'll miss a payment, call the bank before it happens. For more on repossession, see What To Check Before You Sign A Car Loan.

What is the difference between a fixed and a variable car loan rate?

With a fixed rate, the rate and the monthly instalment stay the same for the whole loan. A variable rate is a reference rate plus a rate the bank adds. So the instalment moves when the reference rate moves. The reference rate changes when Bank Negara changes its key interest rate, the Overnight Policy Rate. BSN's variable rate disclosure sheet shows the effect on an RM80,000 loan over nine years. At 4.42%, the instalment is RM900. It rises to RM938 if the rate goes up by 1 percentage point. It rises to RM978 if the rate goes up by 2 percentage points. Banks offer both. Bank Negara says variable rate financing made up 15% of the hire purchase financing banks offered at the end of 2024.