6 Things You Need To Know Before You Take Out A Car Loan
So, you’ve got your eyes set on that new ride which has just been launched and you’re now looking to take out a car loan with the bank (also known as ‘hire purchase’).
Before entering into what typically is a nine-year commitment, here’s the lowdown on what to look out for in a car loan agreement.
1. Minimum car deposit
The minimum deposit that banks normally ask for is 10% of your car purchase price. For example, if your shiny new car costs RM50,000, you will typically need to pay RM5,000 up front. However, some banks may ask for a higher deposit amount.
2. Fixed vs. variable interest rate
Most banks would offer a choice of fixed or variable interest rate for your car loan. A fixed interest rate loan means your interest rate would remain constant throughout the loan term. As for variable interest rate loans, banks normally quote a certain percentage above the Base Lending Rate (BLR), which means that the amount of interest you pay will change whenever the BLR changes.
3. Late payment charges
If you are behind in your car instalments, banks can impose a late payment penalty and charge additional daily interest on the overdue amount. Read the fine print to make sure you don’t get any surprises.
Depending on what the banks feel about your capacity to repay your car loan, you may be required to nominate a “guarantor” to support your loan application. A guarantor is essentially the person who will be responsible for paying off the unpaid portion of your loan, including all fees and interest charges that you have accumulated, if you fail to honour the car loan agreement.
As the car hirer or borrower, it is your responsibility to ensure your car is properly insured. Banks normally require you to take out a comprehensive insurance cover on your car before approving your loan.
Repossession can happen when you and your guarantor fail to honour your car loan agreement. This usually occurs when a borrower repeatedly fails to pay the monthly instalments as agreed in the agreement.
This article was first published in August 2014 and has been updated for freshness, accuracy and comprehensiveness.