A Guide to Car Loans & Interest Rates in Malaysia

Buying a car is a large commitment because of those hefty price tags, but it is a necessity for some. When you finally decide on your choice of buying a car –  new or used –  you have two main options when it comes to paying the price; you can fork out cash-on-hand, or purchase it with a car loan also known as a hire purchase loan.

But when it comes to getting a car loan, many (especially first-time buyers!) do not fully understand how it works. So, to help you understand how car loans in Malaysia work, here is a basic guide on car loans including the interest rates from local banks like Maybank and CIMB. 

What Is a Car Loan?

A car loan in Malaysia is a type of loan that is taken to buy a car. By taking up this loan, an individual is tied down to a formal written agreement where the borrower (car buyer) is indebted to pay the loan amount plus interest to the lender (banks, financial agents, etc.) over a specified period of time. 

For most of us, getting a car loan is unavoidable as most people wouldn’t have enough cash for it. However, do note that if you fail to keep up with the loan payments, it may result in the car being repossessed by the lender. 

Basic Car Loan Terms to Understand

Here are some basic car loan terms you should know before we dive deeper into this topic. 

• Interest Rate: This is the price you pay to borrow money from the bank. The car loan interest rates in Malaysia depend on the base rate that is provided by the bank, which can go up or down depending on the country’s economy and decisions by Bank Negara.
• Down Payment: The upfront payment for the car that covers part of the cost.  It is usually 10 percent of the total cost for new cars and 20 percent for used cars.
• Margin of Finance: The proportion of the car’s cost that the bank will lend to you. Basically, this refers to how much the bank will be financing your car’s cost. 
• Loan Period: The total amount of months or 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.
• Repossession: The lender (bank) takes away the car from a borrower when the latter fails to service the car loan installments in two consecutive months.

So, What Are the Documents Required for a Car Loan in Malaysia?

Here are the requirements and general documents you will need for a car loan application. But keep in mind that some banks may require additional documents when you apply for a loan. 

How Does a Car Loan Work in Malaysia?

Generally, there are two types of car loans. The interest rates may vary between these two as it depends on the base rate, the bank you choose, and if you are getting a new car or a used car.

Two main types of car loans:

1. Fixed rate loans: The interest rate and monthly installments stay the same throughout the loan period.
2. Variable rate loans: The interest rate is pegged against the Base Lending Rate (BLR). The BLR is a rate determined by the bank on the cost of borrowing money that will be lent out. 

Banks typically provide you a margin of finance up to 90 percent, while the rest is considered as your down payment.  But if you can afford it, paying a higher down payment will lessen your principal loan amount and interest.

Read More: Car Loan Rejected as a Fresh Grad? Here’s Why & How You Can Buy Your First Car

Another factor that might affect your installment and interest is the loan period. In Malaysia, the maximum repayment period for a car loan is nine years. The longer you stretch the repayment period, the less installment amount you’ll pay per month, though at the expense of incurring more interest over the long run.

Example: You take up a RM 70,000 car loan with an interest rate of 3.5 percent. The table below shows the total interest that will be accrued, as well as your monthly installment. 

Do take note that car loans with a margin of financing of 100 percent do exist. Full loan financing is offered only by very few lenders and for specific buyers such as first-time car buyers.

Car Loan Installment & Interest Rates

The installment and interest rate that is calculated for your fixed-rate car loan is determined by these values:

1. Loan amount;
2. Loan period; and
3. The interest rate.

These are the formulas used to determine the total interest, monthly interest, and monthly installment for your loan.

• Your total interest = interest rate/100 x loan amount x loan period
• Your monthly interest = total interest / (loan period x 12)
• Your monthly installment = (loan amount + total interest) / (loan period x 12)

Let’s circle back to the same example where your car loan is at RM70,000 with an interest rate of 3.5 percent and a five-year loan period. Here is how your total interest, monthly interest and monthly installment will be calculated based on the formula above. 

• Total Interest: 3.5% x RM 70,000 x 5 = RM 12,250
• Monthly Interest = RM 12,250/ (5×12) = RM 204.16
• Monthly Installment = (RM 70,000 + RM 12,250) / (5×12) = RM 1370.83

Car Loan Calculator

Car hire purchase interest rates in Malaysia differ according to different factors which include the brand, model, the car’s age (new or used), the financial status of the borrower, the total loan amount, the repayment period, and the borrower. 

So, it is always a good idea to make comparisons between several legal and official lenders to find the car loan with the lowest interest rate and terms that satisfy your needs. The easiest way to do that is by using a calculator like this used car loan calculator. 

Here is a list of the car loan interest rates* in Malaysia for new and used cars from the ten major banks.

*Based on individual bank’s hire purchase loan information

Check out These Helpful Tips to Get Your Car Loan Approved

Here are some things you should take note of if you don’t want your application to get rejected. 

• Determine what you can afford based on your monthly income: This is the most important aspect of the car-buying process. You need to know the type of car you need and how much you can afford. The rule of thumb is to only spend 20 percent of your income on your car loan. 
• Check your credit score: For those with a clean or non-existent credit history (zero loans and credit card payment record), the chances of your car loan being approved by the bank are very low. For starters, you need to build a credit history for a minimum of six months such as by getting a credit card. This will show the bank that you can be a good paymaster. For those with a poor credit history, you need to rectify your repayment habits by paying your loan or credit card on time, or in full because a poor credit score will lower your chances of getting your car loan approved.
• Compare car loan interest rates: Since banks have different terms and interest rates for new and second-hand car loans, it is important to research their interest rates. You can also apply to multiple banks and pick out the best offer. 
• Get a guarantor: If your credit score is low or non-existent, you can get a guarantor to strengthen your application. The guarantor, who is typically a close relative, will assume the same risks as the borrower. 

Always remember, 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, repair, road tax, insurance, parking, and travel costs such as highway tolls, among others. So, make sure you consider these costs when budgeting a car!

Also Read: Everything You Need To Know About Car Insurance In Malaysia

Malaysia Car Loan FAQ

1. What is the minimum downpayment required when buying a car?

The minimum downpayment is usually 10 percent of the car’s purchase price for new vehicles and 20 percent of the price for used vehicles. However, a lender may require a higher down payment or offer promotions with a lower or even zero down payment requirement.

2. Can I change the monthly installment amount if I have financial difficulties?

If you are unable to pay your installment due to financial difficulties, you can discuss the matter with your bank. Do note that the decision to modify your loan payment terms is up to the bank’s discretion.

3. Do I still need to pay the monthly installments if my car is stolen?

Yes, because your loan does not cease with the theft of your car. However, you may claim the losses from your insurance provider, up to the market value of your car or the sum insured, whichever is lower. You can then use this insurance claim to settle your loan with the bank.

4. Can I keep my car grant or vehicle ownership certificate (VOC) so I can renew my motor insurance and road tax?

The lender will keep the VOC until the loan has been settled in order to avoid potential inconveniences stemming from card damage, misplacement, or theft. Most banks will provide insurance and road tax renewal services to their borrowers, so you can apply for the renewal directly from your lender. Alternatively, you can apply for a motor insurance and road tax renewal

5. How do I retrieve the vehicle ownership certificate (VOC) from the bank after I have settled my car loan?

Once you have settled your loan, you can call the bank to confirm that it has been settled and to find out at which branch your VOC is kept. You can then visit the particular branch to collect it.

If you’re looking to buy an affordable, quality car, do check CARSOME out. All our cars are thoroughly inspected at 175 points to ensure they’re free of major accident, flood, and fire damage. 

Additionally, you can expect a fixed price with no hidden fees, five-day money-back guarantee, and one-year warranty.

Find your dream car on CARSOME today or download our app.

This content was originally published on 21/4/2021. It has been updated for freshness, accuracy, and comprehensiveness.