Loan

A Useful Guide to the Best Car Loan in Malaysia

3 Mins read

You can now realize your dream of driving your own car in Malaysia. With car loans from banks, you do not have to wait and save money for years or use all your savings. Nevertheless, there are several things, from car loan application to credit score and other financial aspects, to consider before acquiring a car loan. 

If you are new to car loans in Malaysia and don’t know how to go about it, this article will help you with essential aspects of auto financing.

Know what a car loan is

An individual in Malaysia can obtain a loan specifically to purchase a car. By accepting this loan, the borrower (buyer) is bound by a formal written agreement to repay the loan amount with interest to the lender (financial institutions like banks) over a specific period, say 9 years. A car loan is offered for new, reconditioned, and used vehicles.

How does a car loan work?

You will come across two types of car loans, with interest rates that change depending on the bank you select, your base rate, and whether you want to buy a new or used vehicle.

  • Loans with fixed interest rate: The monthly instalments and interest remain the same all through the period of the loan.
  • Loans with variable interest rate: Here you find the interest linked to the Base Lending Rate (BLR). The bank sets the BLR based on the cost of borrowed funds, which will be lent to its customers.

Banks usually lend you up to 90% of the total amount, with the remaining 10% serving as your down payment. A larger down payment, however, will lower your principal loan balance and interest if you can afford it.

The length of your loan could also have an impact on your instalment and interest. The longest loan repayment period in Malaysia is nine years. You need to pay a small amount as instalments each month if the repayment period is extended, but it will be at the cost of accruing more interest over time. 

Some useful tips to have your car loan application approved

Similar to other loan applications, the approval of your car loan application will depend on your employment status, income, current financial obligations, debt service ratio, and other lifestyle aspects. You can follow these tips before your car purchase for the seamless car loan application process:

  1. Find out how much you can afford

You need to know the car you want and the amount you can spend, for it is the most crucial step in the car-buying process. Find out your debt service ratio to evaluate your income against commitment. Further, you should also consider the costs associated with maintaining a car, such as insurance, petrol, insurance, servicing, and other miscellaneous expenses.

  1. Check your credit score

There is very little likelihood of approval of a car loan by the bank for applicants with no record of credit cards and loans or a clean credit history. In such a situation, you should get a credit card and establish a credit history for at least six months.

If you have a bad credit history, you should change your repayment behaviour by making payments in full and on time on your credit cards and loans. It is better to maintain a timely payment habit for 12 months before your next loan application because a low credit score will lower your chances of getting your car loan application approved.

  1. Compare interest rates

Before signing any contract, compare interest rates from different banks because they offer different terms and rates for auto financing. You can easily check and compare car loan interest rates on a reliable bank’s website, which also offers the facility of a car loan calculator to calculate the monthly instalment amount based on the loan tenure and interest.

Once you determine the loan amount and repayment schedule and find it affordable, you can go ahead filling the car loan application online and submit it with the necessary documents. 

  1. Find a guarantor

Getting a suitable person to guarantee the car loan is a good option if you are a non-Malaysian or an individual below 21 years of age or your credit score is zero or very low.

The guarantor will carry the same risk as that of the borrower if he or she is a close relative. This means that a guarantor should take action to mitigate the situation in the event that the borrower is unable to pay the monthly instalment or else, the guarantor’s name and credit will also be at risk.

In short, you should not have any problem applying for a car loan as long as you are 18 years old or above, make RM24,000 or more per year, and meet all other eligibility requirements. Banks like RHB help you with all the details about car loans online. All you have to do is to submit your car loan application online.

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