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.

Most new cars nowadays got a lot of engine issues after 5 years. So its better take 5 years or lower loan. Incase u have to dump the car after the warranty period ends

If u have to stretch to 9 years so u could pay lesser, that means u can't afford the car.

lol, car interest is low btw, for me get 9 years coz im not really change car so often. monthly pay lower, add the balance to the asb, well about the same as 5 years, plus u got cash in hand,

whatever works to you btw. different people different priority. that is their choice. i saw many ppl saying 5 years better coz interest high if 9 years, then go pay 5 years for ur houseloan

U can get a 9 year loan for whatever reason.. just don't get it because you cannot afford a five year loan

9 years are better if you invest ur extra cash, if you choose 9 years because you want to own something that you cant afford in 5 years loan, then you are financially illiterate.

I honestly really hate people who give the one-liner “if you can’t do it in 5 years you can’t afford it”

There’s so much more to that decision than what meets the eye

For some people that has more one their plate compared to others, a 9 year loan brings them some degree financial freedom

I honestly do have friends that come from poor families etc that’s still helping their parents, and at the same time having families of their own, who took a 9 year loan for a persona

It’s a good car. Spacious, well priced, and very practical, but they just have other commitments in life that come first

To lump people like that into a single statement to me is very undermining their hardship and troubles

Thus my statement, there’s no one formula that fits all

However, if you buy it on a 9 year loan to show off then it’s a different story ofc

Agreed^

Too many variables in life -

Some can live with just rm500 monthly savings, some wanna push to rm5k or more and just prefer to have better cashflows

Some would just prefer living in a 1000sq ft apartment with monthly commitment that maxes out at 2k a month, some die2 wanna live in landed prop and dont mind forking out more than 4k for a mortgage, summore gotta travel further to the workplace

Some just hantar their kids to Kebangsaan schools, having to fork out costs just for books and daily duit belanja, some prefer to spend 20-30k a year per kid for a supposedly better school

It's all just trade offs, unless you have deep pockets and are able to afford the best of everything

Depend on people, for me salary more then 9k. I brought Peugeot 208 serving 9 years loan.
Peugeot SC really suck, but I still driving it so far no problem

Why not lease???

it depends on what you do with your savings. if youre a salary earner with no other investments or side business, then just pay it off, the shorter the better. if you have investments or business that may use this extra savings to channel more income, then drag 9 years.

quite good article. thanks

usually you are not frequent car change. u could opt 9 year loan. use till 10 yrs plus then change new

while u could maximize your loan tenure to ease your repayment. althought can partially withdraw from EPF (1st house)

I think low-middle class bumiputera should take advantage of 9 year low interest car financing by investing in asb the difference in monthly commitment of 5 vs 9 years loan.

I'd done the calculation and indeed one can get some extra money within 9 years by doing so. Of course it depends on your car financing interest rate, so everyone should calculate it themselves.

For non-bumi, it depends on our life priority and situation. Both has pros and cons. We are essentially paying the car with " more money" or "more time". I

If you have money, the shorter the tenure the better.

org first time beli kereta je yg ambil 9 tahun. dulu masa aku mula2 ambil kereta 9 tahun. member2 sindir "first time ambil kereta ya bang"
mana aku paham time tu.

kereta hutang 9 tahun kalau u nak jual atau trade in u kena settle 4 tahun pertama. itu interest bank.kena settle

Ive been selling cars for years and honestly,

90% of my customers took 9 years loan for their cars.
The 10% are mostly rich ones who has their own business.

What brand though?

for me 5 or 7 year is ok, 9 is a no no.
then, ensure to get good interest rates. u see we take local car, price is cheaper than other but get slapped with higher interest rates. take proton pre-geely (now post geely get special rates interest), boom 3.5-3.8% for 5, 7 years. take honda, toyota, get 2.5-2.6% same 5-7 years loan.

resales value also need to take care. proton car especially the cvt equipped values is down to the drain. I have purchased the Iriz premium 2015 at rm24k last year. the car was priced closed to 60k 3 years back.



This post has been edited by ayamxxx: Aug 9 2019, 09:38 AM

the monthly money saved between 6yrs and 9 is very very small sum

it probably cant even be enough for you to go travel europe

there's a thread in /k that compared between those 2, with the additional money from high/low DP put into bank for interest and see which one yields better/more return

nuvi share your thread about high/low DP for car purchase...

Wait I go find back my excel file

Following the link for the car price, DP, interest rate, I make a comparison between 9 years vs 5 years loan. The difference of money will be put into FD. Click the picture to see it more clearly


After 9 years the difference is you will have less six thousand ringgit if you were to take 9 years loan. Spread out by 9 years that is RM671 per year. If you put it to other type of fund/investment that give higher rate then the difference will be smaller. Usually for shorter term the interest rate is higher than longer term.

The pros that I can think of for 5 years loan is you have extra 6k, if you were to trade in your car at 6th year, you will have the car value at that time as your DP + 5k cash whereas if 9 years loan after deduct all your saving you might need to top up 3k to 4k to clear your loan.

The pros for 9 years loan is like you mentioned, inflation. Also as the link mention if you want to buy property. Additionally during the first 5 years you will have more extra money in your saving for emergency or opportunity use. You will less likely want to change car because still serving the loan.

Wow

Not sure small sum or not, I'm paying close to 1.9k/month for 5 years. Car is 8 years now, so I've been saving 36 months x 1.9k = 68.4k
Except regular maintenance, the only major service I spent is 4k recently only, rather than changing a new car and keep paying installment.

BTW, just back from europe


Lucky didn't die like king of random


Kucing kata jangan


This post has been edited by cute_boboi: Aug 10 2019, 12:50 AM

Already decided when i need a car I'll go for the Renault captur subscription. Hassle free.

I would always go for 9 years.

It does not matter if i use the car for 3 or 5 years.

What i save from the monthly payment I put into investments that have returns higher than the car loan effective interest rate.

I prefer 7 years. The monthly instalment is not too much like 5 years, while the time it takes to settle the loan is not too long like 9 years. If I wanna change car after 5 years, it is very likely that the sale price will be slightly more than the outstanding amount of the loan, so I don’t have to touch my savings to pay the DP of next car.

If can, drag 11 years. Janji YOLO

9 years is not bad what. Put higher downpayment. At 5th yeara if you are comfortable with the car snd decide to keep driving or you want to sell, settle the loan and get some rebates.

Isnt extra downpayment + get rebate = means total interest rate and monthly payment pretty much more or less like 5 years loan.

Maybe somebody can share the spreadsheet to compare

This post has been edited by maxizanc: Aug 11 2019, 08:41 AM

1.9k interest a month r?

You only save on interest. You took a 5 or 7 or 9 year loan your principal loan remains the same.

Buy lightly used car? Or just 3 year old used car? Save a lot actually

But from year 6 onwards, I don't need to pay installment anymore and that's the monthly amount I'm saving, for a Europe trip as someone suggested above

Your savings calculation is still not right. You still pay 100k over 5 years for that car vs the guy who is still paying the 9 year loan + more interest. At the end of the day, you only save the extra 4 year loan interest.

You only have more cash flow after 5 years whether you save or not is your issue. Your income will not increase in the 6th year because you have finish paying off your 5 year car loan.

This post has been edited by rapple: Aug 11 2019, 07:27 PM

Interest is calculated based on rule of 78. You pay more interest early on and lesser towards end of loan tenure.

Lazy to upload file but with a 9 year loan tenure for 15k total interest to be paid. At the end of the 5th year, the interest remain to be paid is only around 1.6k+ but principal loan balance still around 25k left to be paid.

For me I will put the 25k put in ASNB.

The initial question is to choose shorter or longer loan tenure, in case to dump car after warranty. Not about the interest paid.
So imagine if dump the car at 5th year after warranty. I do not need to top up, but I'm getting back money for selling the car.
Imagine if you loan 9 years, dump at 5th year, what is the calculation ?
It's a trap to twist the presentation by car salesman for someone who may not be financially sound. A more proper advise is to choose a cheaper car that can pay in 5 years loan, rather than max it out for a more expensive car at 9 years loan.

My income did not increase (assuming I'm not getting increment or business profit), but my saving/spending power increases for other things in life. I'm not tied down in car loan continuously, that's an expense.

Dump at 6th year and loan again? How much is the maintenance of the car after warranty is over to justify to buy a new car again? How would you know the guy with a 9 year loan need to top up to settle loan?

How is that financially sound to you to sell and buy car again?

You might as well pay upfront cash and tell me it's a ONE off car expenses.

Travelling to Europe, bank interest and maintenance of the car is an expense.

Car loan for me is not because car it's an asset to me. Car enables me to meet or work with people in different places to generates more income.

People who spend beyond their means its destined to doom financially be it for car loan or any credit facility because they didnt have a plan regardless it's a short or long loan tenure.

Can't answer your question though, I didn't dump at 5th year. It's not financially sound to me to do that, nor is it financially sound to me for a car loan >5 years. I only know I have extra 1.9k per month for saving/investment/expense for the past 3 years and upcoming future until it's time to sell my car and get a new one (with or without loan)

Is this rule of 78 applied generally across all bankers in Malaysia? If the rule of 78 applies, meaning you will opt for shorter duration if loan period?

Personal loan and car loan uses this method.

Whatever loan you take of course the shorter the tenure the less interest you need to pay.

As Car Dealer i suggest 9 years.

U could have better cash flow means u could save more money for emergency, investment and other purpose.

Nevertheless you could always do full settlement earlier, the bank will gv you discount for that

Now I’m in a dilemma in this situation. Am about to get a car loan soon.

The actual difference between my 5-year loan monthly repayment and 9-year loan monthly repayment is approximately RM1k.

The interest rate is rather low at about 2.2% to 2.3% after another round of rate cut by the authority.

This is a mixture of both F&F and Finance House topics already.

I have no problem in investing the RM1k into any other investment vehicle which can offset the interest rate payable to the bank, but the uncertainty is how can I max out (what kind of investment other than FD)? 9 years seems a bit too long for us to guesstimate the market and anything can happen within this period.

Appreciate your comments.

Edit: additional question. What's the difference between the car loan you apply yourself and the one your agent applies for you?

If i apply on my own, how do I assign it to my car? lol sorry for the stupid question.


This post has been edited by tehoice: Feb 18 2020, 06:42 PM

Owning few cars before wolith 9 years loan but never kept more than 5 years.trade in or sell

For bumiputera, better take 9 years

The ‘extra’ money you save from the monthly instalment can go into ASB

I bought a car loan 9 years, paid until 5th year end i sold it, not because of the car problem but i would like to have a change. But then i feel that 9 years too draggy. 5 years makes perfect sense. 7 years is too stretch abit for a higher spec car? maybe.

A sales person told me nowadays bank only approve min 5 yrs. Cannot be less than that. Anyone can verify?

What kinda bullcock story is that? I just bought CX5 2.0 GLS on a 3 year loan last month.

That said, I put down 35% downpayment.

That is why this question being raised here. I intend to pay 50% down payment.

got 6 years loan? usually is 5 7 or 9 right?

no rules like that

but officers do prefer longer loan tenure,

though bankers can adjust slightly higher interest for shorter loan tenure, they would still prefer longer ones

salesman mostly just tell the story that suits the bankers to buyers

up to you to pursue another bank or press on your salesman

I bought a car back in 2014 with a loan of 9 years.

Now, I have like 30k outstanding balance with the bank. Anyone know how much discount the bank might give if I plan to do early settlement?

Call the bank. they will give you the estimation

currently serving 5 years loan,
it is painful with very limited cashflow but look forward
you can have less commitment 4 years earlier than others

i guess a few K but less than 5K

Tell that salesman to go eat 2 dicks then.

I was given a choice to choose anywhere between 1 to 9 years of loan, there was no requirement of any type. My loan is from Maybank too btw. My interest rate is also the variable type and not the fixed type rate as well.


Got, you can choose any number between 1 to 9 years. I was given that option.

This post has been edited by SSJBen: Feb 21 2020, 04:12 PM

Double post.

This post has been edited by SSJBen: Feb 21 2020, 04:12 PM

Variable type means pay lower interest rate for 1st few yrs then increase? Pls adv.

6 years is good.

It means the interest rate could go up and down on a year to year basis. Currently my interest rate is only 2.32% and since my loan is only 3 years, the risk I'm taking for it going up or down is only well... 3 years. I doubt in these 3 years the interest rate will shoot up to something retarded like 4 or 5%. Even if it comes to that, then there's much bigger things to worry about than a car loan at that point.

i botted my wife car 50% DP and loan 3 years, end up paying it off in 6 months... got discount lagi.

sini banyak para economist yg bijak lg pandai. ptuihhh

High roller

What car was it

If you have good tax submission go for CASH BUYER

Shouldn't be worry if you submit tax every yrs.

9yrs good la.. where can u get 2% interest in the market.. u go for lowest interest then u make ur money work for u.. sohai ppl dump 50k into dp then 50k actually can help him generate more than 2% interest to cover the actual interest already.

Hahahhaa I think you have no clue about Flat Interest rate vs Effective Interest Rate..

cheap skate SUV bang... me kuli saja

Ya, that what I wanna told him too. Financial illiterate

Out of curiosity, does bank offer 6 years loan?

I always see car brands advertise 5/7/9 years in their pricelist, but not 6yrs and always wondered.

Thinking of changing car soon and based off rough calculation I'd prefer a 6 years loan tenure max.

lol, just go with 5 or 7, it won't make any big difference.

Yeah might just go with 5yrs if no option for 6yrs. Although, that'll leave me about RM130 poorer every month

Or have some money to repair the car in case it goes south.

You dont want to have to fork out for major repairs while still having to service the high loan.

This post has been edited by jaycee1: May 20 2020, 11:04 AM

I would take a 7-year loan, and then do a full settlement at the 5th year.

9. Stretch it! Car loan rates r cheapo. tat way, u'll have more disposable income.

example interest rate @ 2.7%
5 years = 2.7% x 5 = 13.5%

9 years = 2.7% x 24.3%

Yes, 9 years maybe your interest rates will be lower but my guess by a bit. Bank needs to manage risk as well apart from making money.

Most standard cars come with 5 years warranty. So if you are going for 9 years, the at the 6th year... you continue to pay loan but you have a new commitment which is the car maintenance in case anything fails.