10 Basic Things to Know When Applying for a Car Loan in Malaysia
3% SST makes a world of difference!
Car prices are expected to increase and be higher than the GST price by approximately 2% to 3%. If you’ve been planning to buy a car and apply for a car loan in Malaysia, you’ll be well-advised to make the purchase before the Sales and Services Tax (SST) comes into force on September 1, 2018.
Increased taxes affect applying for a car loan in Malaysia
In a report by NST, Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad said, “Before GST was implemented, SST was 10%. If we consider this figure, we expect the prices of vehicles to increase, post-SST. This is an easy estimate if the rate is the same.”
Similarly, we can expect prices for car-related products and car services (e.g. repairs, maintenance) to potentially increase too following the 10% rate.
With the current tax holiday going on, many Malaysians are taking advantage of the cheaper car prices. For those planning to apply for a car loan in Malaysia, there are a few things you must know.
Find out the 10 basic things you need to know when applying for a car loan in Malaysia:
1. New or used car?
Most cars lose their value after a few years, and used cars typically have lower resale value. If you plan to buy a used car, expect a higher interest rate on your car loan in Malaysia.
There’s also a vehicle age limit (maximum 12 years) imposed by some banks, so if the used car of your choice is too old, you’re better off buying a new one.
Not only will you be paying a higher interest rate, but there may also be car-related problems down the road, which is common for old cars.
2. Non-national or national car?
National cars like Perodua or Proton have a slightly higher interest rate compared to non-national cars like Suzuki or Nissan.
That said, it doesn’t mean you shouldn’t buy a national car since the difference isn’t that much.
3. Types of financing
In Malaysia, you can choose between conventional financing and Islamic financing for your dream car. Each type of financing has its pros and cons, and it’s up to you to decide which one offers a better deal.
In conventional financing, your lender makes a profit from the interest charged, with the rates either based on a floating rate or a fixed rate. The amount of interest paid will be cheaper the sooner the payments are made.
When it comes to Islamic financing, interest-based transactions (also known as riba) is forbidden, so instead of an interest rate, this type of financing features a profit rate and a concept where they buy something on your behalf and then sell it back to you for a profit. The profit rates can also be based either on a floating rate or a fixed rate.
You don’t have to be a Muslim to get Islamic financing, as long as your line of work is not haram or forbidden by Islamic law (e.g. liquor seller, gambling operator).
4. Types of interest rates
For a car loan in Malaysia, banks in Malaysia offer two different types of interest rate: variable interest rate and fixed interest rate.
Variable interest rate (also known as floating rate) features a rate that’s controlled by the market or the bank and it can change at any time. A potential increase can be seen in the loan repayment period and the monthly installment amount. However, this type of loan can be cheaper during bad economic times.
A fixed interest rate is normally favoured by most Malaysians due to its predictability. The rate remains the same and you know exactly how much to pay in your monthly installments.
5. Loan tenure and repayments
Most banks are usually flexible with their repayment terms. A short tenure can be one year, and a long tenure can go up to 9 years.
Shorter repayment terms may also mean higher monthly instalments. You need to consult with the lender regarding the amount you can pay each month to set the repayment period. Typically, most car buyers will choose a repayment term of 7, 8 or 9 years.
6. Early settlements
Early settlements of your car loan in Malaysia can save you money, but this depends on the loan type you’ve chosen. In most cases, a rebate will be given when a car loan in Malaysia is settled early. You can ask your bank about the rebate amount.
Normally, you need to make some payment in advance when buying a car, but the amount varies according to the car dealership. In general, you have to pay about 10% of the value of the new car you are purchasing (or 20% for used cars).
You may find several dealerships promoting a down-payment of as low as RM500 for a new car, but that may mean a higher monthly payment and/or longer repayment term.
8. Insurance and road tax
Besides paying for the car, you’ll also have to purchase a car insurance and a road tax for your vehicle every year, so be sure to allocate enough savings for these two.
Most banks will arrange the insurance part on your behalf, but you can still consult with them about finding an insurer of your choice.
9. Bank or dealership?
Most car dealerships will arrange the car loan application on your behalf if you don’t mind paying for commission charges. It’s a lot cheaper to do everything on your own, but it’s also a lot of work.
10. Eligibility and getting a pre-approved loan
In general, car loans are only approved for those aged 18 and above. To see if you are eligible for a car loan in Malaysia, banks will check on your monthly income. If the loan’s monthly installments cost more than your salary, the loan will not be approved.
During application, you must provide the following documents to prove your qualification, which will be submitted along with the application form:
- Photocopy of your IC
- Copy of valid driving license
- Copy of latest 3-month pay slip from an employer or latest 3-month bank statement from your savings or current account (to show monthly salary credit)
- EPF tax return / latest income statement with proof of tax payment
If you are self-employed or retired (with pensions), you must provide your bank statement for the last 6 months, and you may also need to have a guarantor with a stable income.
Additionally, you may need to prove that you have a good CCRIS rating, so be sure to pay your credit card bills and other loans on time.
Another thing that you must keep in mind is to compare different car loan options before choosing one that best suits your interests.
Wish you a happy and safe ride!
Written by BBazaar Malaysia.
BBazaar.my is a leading online marketplace in Malaysia that helps consumers compare and apply for a credit card, personal loan, home loan, car loan and insurance.
With car prices expected to increase due to SST, saving on costs when applying for a car loan in Malaysia is important! Share with your friends if they’re looking to buy some new wheels!
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