Have you just recently graduated and looking to buy your first car? Are you planning to change your current vehicle but don’t know where to look? Have you been driving your current car for far too long?
Car financing and hire purchase
Applying for a car loan can be very easy and quick as long as you know what to do. In most cases, all you need to do, after selecting the car of your choice include:
- pay a booking fee – usually RM500 or RM1,000 at average
- Submit your photostat IC and Driving license
- produce your proof of income like payslips and EA Form
Is there a difference?
When you buy a vehicle, you are NOT applying for a loan per se but they are referred to as hire purchase. This simple means that the bank or financial institution does not look at the vehicle as any form of collateral but is the rightful owner of your vehicle. In other words, until you finish paying off the hire purchase, you are ‘renting’ the vehicle from the bank.
Choosing the best car loan
With almost every commercial bank offering some form of hire purchase loan for vehicles, how should you make the decision on which loan to get? Here are some pointers.
- Status of the car – If you are buying a new car (usually from the manufacturer themselves), then the interest rate would most likely be lower. In contrast, it means that buying a used car means that the interest rate is definitely higher. Take note though that vehicles that are more than 10 years would be quite difficult to obtain a hire purchase loan
- Brand – Malaysia has a unique situation where interest rates for national cars (Proton and Perodua) might have lower interest rates. This means that if you are buying a Toyota or a Mitsubishi, the interest rate could potentially be higher.
- Term – This gets you to the entire idea of how banks make their money. They would like to tie you into the longest term possible. The most common term would be 5 years and it goes up to 9 years. Here, the interest rate would be lower if you go for a longer term.
- Margin of Finance – This is if you can afford to pay a higher downpayment. The lower your margin of finance is, the interest rate could be lower too.
- Direct to bank – If you deal directly with the bank, it would save you some money in terms of charges and such. Some buyers like to get their loans through dealers (in a hope that they get it approved easier). There might be hidden charges like commissions involved
- Settlements – There are situations where you might be able to settle your hire purchase earlier. This is where you need to be 100% sure that it is a good idea because some banks impose a penalty of some kind. This is so that they keep you in their accounts for as long as they can
Any other options
Besides getting a hire purchase from a bank, you can actually apply for other loans to pay off this commitment if it is too long. Look at interest rates of personal loans or you can absorb it into a company liability which would help you to reduce your cost. At the end of the day, you want a loan that you can service without putting too much weight on your monthly commitments and to ensure that you can have more financial freedom with your cash flow.