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.

This post has been edited by gregy: Apr 9 2012, 06:58 PM

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...

Banks usually "profile" their debtors based on the type of car they are buying, and historically it's been proven that many NPLs (non performing loans) are for national type vehicles (P1 and P2 included), hence the higher rate. Also, add to the fact that for cars 60k and below, they don't earn that much anyway so even if the interest is higher, they make less while having to bear a higher risk.

The nominal rate for non-national cars is what has been quoted in this thread, around the 2.3-2.6% mark. What you quoted is usually for those special cases when cars are advertised at 1.88% or lower, and yes, they are subsidised rates borne by the car companies, but no, the rates are definitely different between national and non-national makes.