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A car loan is one of the common methods used by Malaysians in order to buy their dream car. Even so, if the calculations and steps are wrong, it may affect your expenses and burden your finances. This article lists a complete guide related to car loans that you need to know about the car loan process whether to buy a new car or used car.
5 Things You Need to Know Before Applying for a Car Loan
It is important for potential buyers who want to buy their first car, for example, to understand the basic things related to car loans such as the car loan process, guarantor or guarantor to buy a car, car loan interest rate, downpayment and so on.
Hire purchase financing requires the buyer to repay the loan as agreed in the hire purchase agreement. This includes the interest rate to the bank in installments for a certain period of time, usually between seven to nine years depending on your ability. Here are five things to pay attention to before you take out a loan for your first car purchase:
1. Understand Basic Financial Terms, Concepts
Most car buyers, especially first-time car buyers, tend to choose any bank loan product offered without a second thought. Basically, you need to evaluate a product offered in detail to prevent you from being entangled with debt and high interest rates. This is because each product offered by each bank offers its own advantages and disadvantages.
In addition, a basic understanding of loan concepts and common terms in hire purchase financing documents can help simplify your business and avoid misunderstandings in the future. The following are common terms found in hire purchase agreements:
Margin of Financing
Most car loans in Malaysia offer a maximum financing margin of 90 percent. This means, you need to pay at least 10 percent of the total amount as a down payment. Despite that, there are some financial institutions that offer a maximum financing margin of 100 percent. It is usually offered to certain categories of borrowers based on other current factors.
Car Loan Interest Rates
The interest rate at each bank is different based on the current policy of the financial institution such as loan amount, loan period, borrower’s credit history and the age of the car. Typically, the interest rate on a new car is around 2.3 to 3.5 percent, while the interest rate on a used car is usually between 3.5 to 4.2 percent. This interest rate may change depending on the current financial situation.
5 Factors Affecting Car Loan Interest Rates
Here are five factors that affect car loan interest rates in Malaysia for your guidance and reference:
1. Car Model
The price of the car and the chosen car model (new car or second hand car) can affect the interest rate of the car purchased.
2. Score and Credit History
Basically, a good credit score gives confidence to the bank and indirectly indicates your ability to repay the loan. Usually, bank loan interest rates are higher if the credit score is poor.
3. Financial Status
Usually, the interest rate is also affected by the current financial status of the borrower. In other words, the higher the monthly income, the lower the bank interest rate offered.
4. Bank Policy
There are some banks or financial institutions that impose additional conditions and rules that affect your car loan interest rate. Therefore, you are advised to make a comparison first before making a decision.
5. Term of Loan
The loan period of seven to nine years also affects the interest rate. The longer your loan term, the higher your car loan interest rate.
Car Guarantor
If you do not have a stable source of income and credit history or the current loan amount exceeds the allowed percentage of income, you may need a car guarantor. Basically, a guarantor refers to an individual who agrees and is responsible for paying the outstanding monthly installments including interest if the borrower fails to repay the loan.
Car Warranty Terms
To become a guarantor, you need to meet the requirements of a car guarantor as follows:
- Aged 18 years and above;
- Not bankrupt;
- Be of sound mind and have the mental capacity to understand purchase and sale documents;
- Have a stable income and financial record;
- Good credit score and history.
Car Downpayment
The car down payment rate is usually around 10 percent of the total loan amount. However, you can pay a higher car downpayment to reduce the amount of principal and interest. There are also some banks that offer loans without having to pay any down payment. However, you need to be careful with such offers as you may have to pay higher monthly installments.
Repossession
If the installment payment fails to be cleared for two consecutive months, the bank can repossess your car. You need to clear the outstanding amount before you can get your car back.
Loan Term
The maximum loan period for a used car is seven years, while the maximum loan period for a new car is nine years. Basically, the longer the financing period, the higher the interest rate that needs to be borne. In other words, a financing period of five years has a lower interest value than a loan period of nine years.
2. Know Types of Loans and Compare Interest Rates
Each bank offers different interest rates, product types, fee rates and car loan charges. For this reason, you are advised to compare at least three different financial institutions before making a decision to get the lowest interest rate. The flat interest rate is the interest rate that is commonly used for personal loans or hire purchase loans (car loans).
3. Prepare the Required Documents
Important supporting documents to help facilitate your car loan application. Here is a list of documents to buy a car for your reference and guidance:
| Types of Car Loan | Car Loan Documents |
| Civil Servants/Government Employees | Copy of identity card (MyKad); Copy of driver’s license; Salary bank account statement (depending on the bank); Copy of salary slip (latest 3 months). |
| Private Sector Employee | Copy of identity card (MyKad); Copy of driver’s license; Salary bank account statement (depending on the bank); Copy of salary slip (3 months latest); EPF statement. |
| Self Employed Individuals | Copy of identity card (MyKad); Copy of driver’s license; Bank account statement (latest 6 months); Copy of company registration (SSM). |
| Graduate Scheme | Copy of identity card (MyKad); Copy of driver’s license; Job offer letter (for applicants who have served for less than 3 months); Certified copy of degree or diploma transcript; Copy of salary slip (last 3 months depending on the bank); Latest bank account statement (depending on the bank). |
| Students | Copy of identity card (MyKad); Copy of driver’s license; Student card; Document of guarantor or car guarantor (mother, father, close relatives who are still working). |
4. Car Loan Risks
It is important that you carefully evaluate your financial ability or possible risks that may occur before applying for a car loan. A high and uncontrolled monthly commitment can leave you burdened with high expenses that can increase the risk of bankruptcy or bankruptcy. In addition, identify other risks such as additional payments, penalties, the possibility of the vehicle being withdrawn or auctioned if the borrower is unable to pay as scheduled and so on.
5. Determine Eligibility Requirements and Credit Score
Make sure you check eligibility requirements such as basic salary and so on with your financial institution before applying for a loan. Also, check your credit score before applying for a loan. A low credit score can affect your interest rate and qualifying amount. Basically, every consumer credit activity and payment history in Malaysia is included in the CCRIS and CTOS credit reports. This report will be used as a reference by the bank if you make a new credit application. For this reason, it is important for borrowers to ensure that repayments are made consistently so that this credit record is in good condition.
Car Loan Pass Requirements 2024, Salary Eligibility to Buy a Car
To facilitate your car loan application, Qoala also provides five car loan conditions for your guidance and reference as follows:
1. How to Calculate Salary to Buy a Car
Each bank basically sets a different minimum salary requirement for each loan application. However, usually, applicants who wish to take out a bank loan must have a minimum monthly salary of at least RM1,500 (and above) and be no less than 18 years old and no more than retirement age when the financing period ends. Here is the affordable car buying formula for your reference:
Car Price Does Not Exceed Annual Salary
You are advised to buy a car at a price that does not exceed your annual income. If you earn RM2,700 a month, the price of the car purchased must not exceed RM32,400.
Ansuran Bulanan Tidak Melebihi 15 Peratus
In addition, monthly installments are also recommended not to exceed 15 percent of your monthly income. The lower the better. For example, if your salary is RM2,700 per month, the appropriate monthly installment for you is RM405 per month.
Buy a Car Based on Your Income
If your salary is big, it doesn’t mean you have to buy an expensive and luxury brand car. It is enough for you to buy a car that suits your needs that does not eat fuel, and can facilitate your movement from one destination to another easily.
2. Driving License
Having a valid driver’s license is one of the minimum qualifications to apply for a vehicle loan. Despite that, there are some banks that offer car loans without a driver’s license on the condition that the basic salary exceeds RM3,000. Consult your bank for more info.
3. Car Guarantor
If your salary or monthly income is less than the minimum requirements set, you may need a guarantor or guarantor to support your loan application. Who can be a car guarantor? The car guarantor must be a family member or spouse, provided the guarantor’s salary exceeds RM2,000 per month.
4. Bank Statement or EPF Statement
In addition, bank statements or EPF statements may be required to prove your monthly income is correct and identify your ability to repay the loan according to the agreed schedule.
5. Complete Documents
Prepare complete documents such as a copy of identity card, driver’s license, salary slip, EPF statement and copy of company registration (SSM), if relevant to avoid your loan application being rejected.
Car Loan Rejected: 7 Tips to Avoid Car Loan Rejection
How to know whether a car loan is approved or not is a question that is often asked by applicants. The bank sets very strict criteria before a loan application is approved. Therefore, do not be surprised if your car loan application is rejected by the bank. Usually, a car loan will be rejected if your application does not meet the conditions for buying a car as follows:
1. CCRIS and CTOS Credit Report
A credit score is fundamentally important to assessing your financial health. For example, if you have a credit card, the bank will evaluate your payment records to see if there are any overdue payments, late payments, etc. that indirectly impact your credit score. A good credit score is usually not a problem for the bank to approve your loan. However, a bad CCRIS credit score may make it difficult for your bank loan to pass. You can get information on your current credit standing by going to Bank Negara Malaysia (BNM) in person or doing a credit check online through the eCCRIS system.
2. No Debt Record
In addition, no debt record can also give you problems because the bank cannot evaluate your history and credit score because there is no record. For those of you who don’t have any loans before and want to apply for a car loan, you can consider applying for a credit card first and pay the credit card debt according to the schedule to create a payment record and a good credit history to make the process easier.
3. Salary Eligibility to Buy a Car
Some banks set a minimum net salary qualification of RM1,500 and above for the purchase of a car. For Graduate Scheme applicants, the calculated salary eligibility must not be less than RM1,000 after deducting monthly installment payments including EPF and SOCSO contributions. If the loan application made is not equivalent to the salary qualification, it is very likely that the application will be rejected. In Malaysia, each bank sets a certain minimum wage as follows:
- Maybank Car Loan – RM2,500 and above;
- AmBank Car Loan – RM3,000 and above;
- Public Bank Car Loan – RM2,500 and above;
- BSN Car Loan – RM2,000 and above.
4. Monthly Commitment
A DSR rate that is too high can cause your application to be rejected even if you have a good credit score and a stable source of income. What is DSR? DSR stands for Credit Service Ratio or Debt Service Ratio which is a benchmark for banks to give you a loan. The DSR rate is calculated based on the amount of existing commitments with the bank compared to your total income.
Usually, the bank will evaluate the monthly commitment to know your ability and ability to repay the loan. The ideal DSR rate depends on the bank and your total income. You are advised to keep the DSR rate not exceeding 60 percent of the total income including new loan applications to avoid any of your loan applications being rejected.
5. Employment Status
The status of the position, whether permanent or contract, is one of the factors considered by the bank before processing your loan application. If your position is contract, part-time or temporary, it will be difficult for the bank to approve your application. This is because the bank considers the position or employment status reflects the level of financial stability of the applicant and the applicant may have difficulty making repayments.
6. Just Started Working
If you have just started working, there is a high possibility that your car loan will be rejected. This is because, most banks require salary slips and EPF statements for a period of at least three to six months of salary to ensure that you have a stable source of income and the ability to repay the loan debt. However, you can consider the Graduate Scheme if you have just started working and want to own a car. You can consult participating banks for more information.
7. Guarantor’s Status Is Not Strong Enough
Usually, the bank will also reject your car loan if the status of the guarantor submitted by you is not strong enough. Basically, the car guarantor is also directly involved if the borrower does not repay the loan according to the set schedule because the guarantor also signs a letter of guarantee stating the agreement to bear joint liability on behalf of the borrower. For this reason, the financial factor of the guarantor is also emphasized because it involves other risks that may occur if the borrower fails to repay the loan.
Also, if you are considering car insurance for your new car, visit the Qoala website for more info. Qoala is an insurance platform in Malaysia that promises cheap and best insurance price offers with easy, efficient and fast services.
