Hi all,

I read an article on the car loans, whether if borrower should take a 5 years car loan or a 9 years car loan.

https://kclau.com/wealth-management/should-...-year-car-loan/

What do you guys think?

Personal opinion, i think taking 9 years is better if you were to sell your car at the midst of your installment + your car is depreciate year on year + inflation in Malaysia.

With all the above factors, 9 years loan seems better for borrower?

3 years

5 years max, installment should not exceed RM800 per month. Just fine.

Cash?

Well it’s really a case by case basis scenario

Example #1;
You know you’re gonna use the car for more than 10 years and would like to reduce commitment (more savings or investment)?

Ans: 9 years

Example #2;
You will be using it for long, but you have a lot of free cash that’s remaining after all your savings/spending?

Ans: 5 years or less

Example #3;
You like flipping cars and just would like to enjoy a lot of cars and dont give too much thought on resale value

Ans: 5 years or less (easier to offset loan vs resale)

And the list goes on
Who cares tbh on whether you use cash or loan or ah long to pay for it

In the end as long as it doesn’t burden you and make your life miserable, it has worked for you, and only you

Why would you sell in the midst of installment where most of the time you still need to top up to pay the loan ?

My answer will be 5 years. If cannot afford, then buy a cheaper car. Then continue to drive and maintain the car to 8-10 years. Imagine the monthly $ saved from year 6 onwards. Can use for other things in life, instead of another car.

Sounds fair.

What about the effective interest rate that the author mentioned in the article?

I did a quick calculation. It seems 9 years has a better effective rate and it's giving youa better cash flow.

If need take loans up to 9 years, is already shown you can't afford to own a car, otherwise pick cheaper cars that can you comfly to own, the longer duration the loan, the more you pay the interest.

can i understand why 5 years max? Just to get some understanding on the concept/theory

higher interest rate. the total paid for the car is too high

I won't do anything unless minimum 10% downpayment and 5 years.

Anything longer you pay too much in interest.

This was something I brought up some months back when discussing with one of my cousins.

She bought a brand new Toyota Vios that cost RM87,000 on a 9 year loan.

I advised her against it on the basis that she is paying RM875 per month on 9 years vs RM1440 for 5 years.

Downpayment and what is included in the loan remains the same as does interest rate though in practice for a 5 year loan the interest is a few points higher.

When you finish paying the car on a 5 year loan inclusive of interest you would have paid RM86,500 towards the car but on a 9 year loan you would have paid a total of RM94,500 the difference is enough to put towards the downpayment of another new Vios.

Another thing to consider, if you take 5 year loan anytime after the 10th month of repayment, in an event you need to sell off the car you will be looking at a minimal amount maybe under RM1,000 to settle the bank loan as on average that Vios will lose RM15,000-20,000 per year. On a 9 year loan you will be looking at upwards of RM8,000 to settle the bank loan.

Where would this become most important and maybe might not even be your own fault but that situation is where your car is involved in an accident and has to be a total write-off. The amount the insurance company will compensate you isn't going to be your insured value even if you have an agreed value policy but you will be compensated based upon open market value of your car and that means just a little bit more than what you would get if you traded your car in.

Do you have that type of cash sitting around? Else you will be paying a loan on a car you cannot drive.

That's one of the reasons why in this country there are many cars after a bad accident where it can and should be written off due to chassis damage the owner would insist on repairing the car.

here's the thing, and really, the only thing that most people deep down know, but too embarrassed to admit:

u take 9 years because u cannot afford the monthly repayment of 5 years.

u think a typical malaysian with 8-9k salary will do a 9 years loan on honda city meh tiu

end of story

6 years of course.

1. You will pay less interst in total to the bank.

2. Many ppl will get itchy to change car after 5 years. With a 6 year loan, at 6 years, you can sell the car, n get the whole resell value, which you can use as an additional big down-payment for your next car. With 9 year loan, if you sell at year 6, you will get very little or even have to pay the bank on top of down-payment for the new car. The cycle of high debt continues.

You are not wrong.

But If the interest is low, taking 9-year loan could be beneficial if you smart(invest) with the extra cashflow.

I'm willing to bet 99% of the people who take 9 year loan do not invest with the extra cashflow.

This!

i believe it is also the same they other way.

meaning those who take the 5 years loan and probably saved the RM10-15K difference are just gonna spend those extra money on other non-profitable cause. Ie new phone, gaming rigs, etc etc.

it was the mentality or discipline that separate these people from saving or not.

I'm willing to bet 99% of the people who take 9 year loan cannot afford a 5 years loan and want to drive a car beyond their affordability.

If can’t repay in 3-5 years means u can’t afford it.