When you buy a car, new or used, unless you have some cash saved up to pay off your car, the most common way is buying it via a car loan (or also known as a hire purchase loan). In Malaysia, it would be extremely convenient to have your own car to move around. But when it comes to getting a car loan, many do not fully understand how to calculate car loans and interests. But before we delve deeper into that, here are some basic terms you should know.
Car Loans Terms
- Interest Rate: It is the overall cost of taking out a loan. It depends on the base rate that is provided by the bank, which can go up and down depending on the country’s economy.
- Down Payment: The upfront payment for the car that covers part of the cost, usually, 10% of the total cost for new cars and 20% for used cars.
- Margin of Finance: The proportion of the car’s cost that the bank will lend to you.
- Loan Period: The total amount of months/years taken to pay off your loan.
- Installment: The amount that you need to pay monthly to the bank to clear off your loan.
- Guarantor: Someone who is bound legally to pay off your loan if you are not able to do it.
How Does A Car Loan Work?
Generally, there are two types of car loans and both these loans’ interest rate depends on the base rate, the bank you choose and if you are getting a new car or a used car.
- Fixed rate loans – interest rate stays the same throughout the loan period.
- Variable rate loans – interest rate fluctuates according to the current Base Rate.
Banks typically provide you a margin of finance up to 90% and the rest, would be paid via down payment by you. While it is easier for your short-term finances if you take out the largest margin of finance available, this also means you would be paying higher monthly installments and in the long run, a higher interest.
Another factor that might affect your installment and interest is the loan period. The longer the loan period, the smaller your monthly installment would be, but you would end up paying more in interest.
How to Calculate Car Loan
Example: A RM 70,000 car loan with an interest rate of 3.5%.
|Monthly Installment||RM 2,148.61 (3 Years)||RM 1,370.83 (5 Years)||RM 852.31 (9 Years)|
|Total Interest||RM 7,350||RM 12,250||RM 22,050|
Car Loan Interest Rate
To know how the installment and interest rate is calculated for your fixed-rate car loan, all you need to do is to determine these values:
- Loan Amount
- Loan Period
- Interest Rate
These are the formulas used to determine the total interest, monthly interest, and monthly installment for your loan. Using back the above example: A RM 70,000 car loan with an interest rate of 3.5% with a 5-year loan period.
|Your total interest||interest rate/100 x loan amount x loan period||3.5% x RM 70,000 x 5 = RM 12,250|
|Your monthly interest||total interest / (loan period x 12)||RM 12,250/ (5×12) = RM 204.16|
|Your monthly installment||(loan amount + total interest) / (loan period x 12)||(RM 70,000 + RM 12,250) / (5×12) = RM 1370.83|
But when it comes to getting a car, you should also take into consideration all the other costs that might come up along the way. These costs include petrol, maintenance and repair, road tax, insurance, parking, and toll cost, among others. So do consider these costs when you are coming out with a budget for a new car. You can also check out Carsome’s huge range of used quality cars if you want to cut some costs from your total budget.
2021 Car Loan Moratorium
As introduced again under the PEMULIH stimulus package, a six months moratorium is offered from the 1st of July 2021 to the end of the year. Although it is largely similar to what was offered last year, this current moratorium does not offer the same eligibility requirements as the targeted repayment assistance, that was available from October last year.
Car loans in Malaysia are mostly fixed-rate loans, which means, the interest rate for the loan has already been agreed upon upfront and this fixed amount is charged monthly throughout the loan repayment period. However, for this current moratorium, banks are allowed to set their own terms and conditions for how they want the loan to be paid back. Some pay impose interest accrual during this deferment period while others may not. Some of the banks that have agreed to accrue the car loan interest till the end of the year include Maybank, CIMB Bank, and Hong Leong Bank where the collected interest during this deferment period has to be paid off together with the final installment.