When it comes to buying a car, finance has always been the biggest worry. Needless to say, paying for your car in cash is never ideal in any situation for several reasons. Hence, consumers would usually opt for a hire purchase loan. Well, of course just like everything else, you must know what you’re getting yourself into or else it could very well turn into a financial nightmare.
What are hire purchase loans?
Informally speaking, hire purchase loans are also commonly referred to as car loans in Malaysia. It is when money is being borrowed from the bank to finance the purchase of your car. Of course, interest would be charged on these loans and the rates depend on the respective issuer of said loan. The bank holds authority over your car until the final instalment is made. Naturally, due to principles of the loan, the bank has the right to repossess the vehicle if one fails to pay the instalments accordingly.
Things you should know about hire purchase loans in Malaysia;
- Car loans commonly offer a maximum margin of financing of 90%, hence you are expected to pay 10% of the car value to the dealership. To lessen the amount of interest, it is advised to pay a higher percentage upfront.
- Banks usually offer a maximum term of 9 years on the loan. Although the maximum is 9 years, more often than not, the advised number of years are between 3, 5 and 9 years. Despite your monthly instalment being less with a longer period of the loan, the burden of higher interest rates and responsibility of a longer debt falls on you. However, the ultimate decision remains yours and where you stand financially.
- Special schemes to be noted;
- Bank Islam, Gradhitz Vehicle Financing: Gives out 100% margin to graduates between age 20-30
- Maybank, My First Car Plan: Only for graduates, undergraduates, government personnel and teaching professionals. Fixed repayment schedule, and lower instalment for the first few years.
* Look out for other schemes targeted to first-time buyers offered by authorized dealerships themselves
To paint a clearer picture, below an example of a table representing the repayments of a loan to be settled within 3, 5 and 9 years given the following conditions:
- Vehicle costing RM100,000
- 10% down payment
| Period of loan (Years) | Interests p.a. | Monthly Instalments (RM) | Total Repayment of loan (RM) | Total amount of Interest paid throughout loan (RM) |
| 3 | 4% | 2800 | 100800 | 10800 |
| 5 | 4% | 1800 | 108000 | 18000 |
| 9 | 4% | 1133 | 122400 | 32400 |
Is paying for your car in cash a good idea?
Generally speaking, transactions regarding the purchase of a car are of a relatively large value and this might raise red flags with the Income Tax Department as these transactions are usually said to trigger money laundering concerns.
On top of that, to pay for your car in full would take a large chunk of your paycheck when that money could have been invested elsewhere and possibly given you a larger return in the long run. However, if you do have the additional disposable income and nothing to worry about, paying for your car in cash would be the ideal choice.
