An account-linked variable rate car loan is a type of car loan that gives you the option to reduce the interest and repayment period with your extra disposable income. Though it is unquestionably a smart option for certain demographics of consumers; it remains a relatively new concept in Malaysia… one that many car owners may not even know of when they are purchasing a new car!
If you are actively considering loan options for your new car right now, here are 4 things about this form of car loan that you might be interested to know about.
1) It works when you have extra disposable income
With an account-linked variable rate car loan, you can reduce your interest by depositing the extra cash you have into a linked account, which offsets part of the principal loan amount your interest is based upon.
Your Original Loan Amount : RM100.000
Money in Your Linked Account : RM20,000
Interest is Now Calculated Based on : RM100,000 – RM20,000 = RM80,000
Of course, this would only work if you have foreseeable extra income in the first place, be it from a second job or an annual bonus from your employer.
2) There is a limit on how much interest you can offset
Theoretically, any one could effectively pay zero interest on a variable car loan by depositing the exact amount of their car loan into the aforementioned linked account. However, this is usually not possible as the banks tend to put a cap on the amount you can offset.
3) The interest is higher than conventional loan, BUT it doesn’t matter
Yes, the interest rate of any kind of variable rate loan is commonly higher than that of a conventional loan. However, most variable loan accounts calculate your interest based on the Reducing Balance Method (where interest is calculated over time based on the loan amount AFTER deduction of what you’ve paid). Depending on your loan amount and tenure, the interests incurred by both conventional and variable rate loans could work out to be roughly the same.
4) You can withdraw the money you’ve deposited
With an account-linked variable rate car loan, you can actually withdraw the money you’ve deposited into the linked account… which comes in very handy during emergencies. When you do that, your loan account simply recalculates your interest by adding the amount you’ve withdrawn back into your principal loan amount.
Love this article? You may also wish to read up on the difference between conventional and variable car loan.
Interested to sign up for a variable car loan? Check out Malaysia’s only account-linked variable rate car loan package.
