For car loans you will find that the first half of the tenure, you are paying more interest than principle. For example, in a 5 yr loan, the first three years whatever you are paying to the bank, a larger portion of it goes to interest while a smaller portion goes to principle reduction. After three years if you intend to sell your car, you will find that the interest rebate is minimal.

Let's take a few examples, calculated courtesy of autoworld

Basis for calculation:
Car price: RM115,000
Loan amount: RM100,000
Interest: 2.5%
Tenure: 5, 7 and 9 years
Car sold after 3yrs for RM75,000
5 yr loan: (RM100,000 x 1.125) / 60 = RM1,875/mth.

After 3 yrs: Amt paid (36 x RM1,875) = RM67,500
Interest rebate: RM1,885.25
Total owing to finance: RM43,114.75

Based on the above,

Total amount spent on "renting" the car for 3 yrs is:

(D/p + Amt paid for 3 yrs) less (Sold price - Total owing to finance)

(RM15,000 + RM67,500) less (RM75,000 - RM43,114.75)

= RM82,500 - RM31,885.25
= RM50,614.75
= RM1,406/mth cost of ownership
7 yr loan: (RM100,000 x 1.175) / 84 = RM1,398.80/mth.

After 3 yrs: Amt paid (36 x RM1,398.80) = RM50,356.80
Interest rebate: RM5,529.40
Total owing to finance: RM61,613.80

Based on the above,

Total amount spent on "renting" the car for 3 yrs is:

(D/p + Amt paid for 3 yrs) less (Sold price - Total owing to finance)

(RM15,000 + RM50,356.80) less (RM75,000 - RM61,613.80)

= RM65,356.80 - RM13,386.20
= RM51,970.60
= RM1,443.65/mth cost of ownership
9 yr loan: (RM100,000 x 1.225) / 108 = RM1,134.30/mth.

After 3 yrs: Amt paid (36 x RM1,134.30) = RM40,834.80
Interest rebate: RM9,770.65
Total owing to finance: RM71,894.60

Based on the above,

Total amount spent on "renting" the car for 3 yrs is:

(D/p + Amt paid for 3 yrs) less (Sold price - Total owing to finance)

(RM15,000 + RM40,834.80) less (RM75,000 - RM71,894.60)

= RM55,834.80 - RM3,105.40
= RM52,729.40
= RM1,464.70/mth cost of ownership
So, to sum it all up:

The monthly actual cost difference between a 5, 7 and 9 yr loan, based on a car that is sold after 3 yrs:

5yrs: RM1,405/mth
7yrs: RM1,443.65/mth
9yrs: RM1,464.70/mth

and, total interest paid after 3yrs:

5yrs: RM10,614.75 out of RM12,500
7yrs: RM11,970.60 out of RM17,500
9yrs: RM12,729.35 out of RM22,500

So, in reality, there's not much that separates between 5, 7 and 9 year loans due to the current low interest rates. And, if you have better use for your cash for investments or whatever, it makes sense to take 9 yr loans.

Sonata offering 1.88% interest now.....

OCBC FD can get nearly 4.00% interest.....

Time to full loan 9 yrs and park some $$ in FD

Sonata offering 1.88% interest now.....

OCBC FD can get nearly 4.00% interest.....

Time to full loan 9 yrs and park some $$ in FD

Wow....sonata gives 1.88% interest? I wonder how much do u save say compared with a 2.4% interest for a RM145,000.00 car for a 5, 7 & 9 years loan?

Hi gregy,

You are right on the interest diff is minimal but you miss out one point here.

Based on your calculation, you have RM15k for a RM115k car. After 3 years if you plan to sell your car.

If you took a 5 year loan - you get back RM31,885.25
If you took a 7 year loan - you get back RM13,386.20
If you took a 9 year loan - you get back RM3,105.40

Am sure after 3 years, you'll plan to have a better car which will cost more than RM115k, or even same value. But you won't have RM15k d/p as you first bought it 3 years ago. If you take a shorter loan tenure, see how much you get back in cash to upgrade or even for other usage

Moral of the story is, if you can't afford the more expensive car, get one which you can afford and not regret it later. It's never an advantage in taking a longer tenure for car loan. 

Wow, thanks for taking it one step further I guess in general, most ppl don't even bother to look beyond the surface. Also, we mustn't forget that inflation is another factor that is often overlooked when taking loans. Sure, when you look at effective interest rates you will balk, but if you factor in annual inflation, you will find that by putting in so much into a depreciating liability you are compounding the loss for the future. RM30,000 today is worth more than RM30,000 in 3 yrs time. If that money could be invested to counter the effects of inflation, then that would be the smartest move.

I made a similar calculation a while ago in my own thread, just to illustrate a point, and to stop people from looking at 9yr loans as if they were a major loss making venture. Once the numbers are revealed, many of the advocates of short loans are silenced; they didn't really take that one more step to look at the reality, which in the best sense of the word is called "penny pinching"...

Definitely, if you can put that money aside in say, some investment linked fund or maybe to fund a new home for investment, that is always better than placing all your hard earned cash in a depreciating liability.

And yes, having some extra funds for a rainy day is good too...

Why would anyone buy a car and then sell it after 3 years to incur 50% losses?

easy answer. they fall in love with new car. hence they sell their car after 3 years, and buy new car.

what would b the ideal car if my nett income is 1.8k. jus need some 2 cents

max rmm 600 for installment, but i wouldnt use that as a benchmark, and would go slightly lower than that for misc expenses... aim for 450-500 monthly installment, and you are in the range of saga, viva etc..

what would b the ideal car if my nett income is 1.8k. jus need some 2 cents

If the net income you referring to is after income tax deduction, EPF deduction, mortgage/car loan deduction.

Then it is better to get a car below RM50K.