Question on car loan...

[chuah406]

astroboy,

that's not how it works.

according to a friend in the car financing industry, early settlement is subject to the Rule 78 treatment i.e. all "unearned interest" will be rebated back to you.

in yr example, interest is RM143.75 a month so the remaining interest of 6 years RM10,350 will be the rebate.

yr redemption sum to early settle the car loan after 1 year is therefore :

RM62,075 - RM7,143 (principal paid for 1 year) - RM10,350 (Rule 78 rebate)=RM44,582

HP interest is not fair to the borrower as it calculates interest based on original loan amount instead of a reducing loan amount. But housing loan are already on monthly/daily compounding.

hope that helps.

[astroboy]

Hey thanks, chuah.
The rule of 78 formula is practised in s'pore but recently the govt said banks need not use that formula.

I didn't know in msia they also have the rule 78 formula. That's good news. I need to ask the bank again or maybe switch to another bank and see.

Originally Posted by chuah406

astroboy,

that's not how it works.

according to a friend in the car financing industry, early settlement is subject to the Rule 78 treatment i.e. all "unearned interest" will be rebated back to you.

in yr example, interest is RM143.75 a month so the remaining interest of 6 years RM10,350 will be the rebate.

yr redemption sum to early settle the car loan after 1 year is therefore :

RM62,075 - RM7,143 (principal paid for 1 year) - RM10,350 (Rule 78 rebate)=RM44,582

HP interest is not fair to the borrower as it calculates interest based on original loan amount instead of a reducing loan amount. But housing loan are already on monthly/daily compounding.

hope that helps.

[hyin21]

No need to switch bank, all banks in Malaysia, as long as it is a legal financial institution under BNM, use the same formula.

I have changed cars before and therefore need to settle the loan of the car I was disposing (I have never once finish repaying any of my cars ) and I can confirm that all banks (and many years ago, it's Finance Companies) never charge me for any unearned interest.

Cheers.....

[alancheong7]

heya bro ... long time no see/chat

yes, you are liable for the principal + total interest (calculated flat on loan amount/purchase price across the board - mesia boleh)

fines/penalties for early settlement occurs when there is a lock in period ... after which, you can settle in full with no worries - generally applicable to housing loans

in the UK, HP or car loans are calculated on reducing balance basis
usually paid up within 5 years

and yes, you will get a rebate/discount upon early full settlement of your car loan ... just check with your financial institution/bank officer for the quantum and T&C

OT a bit .. in mesia car owners are shafted three times over
1. by the gomen with high taxes, replaced by high tariffs when source of their corrupt easy pocket money dries up upon implementation of free market
2. by the financial institutions with high rates and lopsided agreements
3. by the gomen (BNM) for not being proactive and controlling the financial institutions as they should
4. by dealers who shortchange or rip us off

These, on top of depreciation

[Irian]

Ya, it's very unfair.
If that's the only way, then we have to pay more down payment to pay less interest...

[alancheong7]

that is true ... but in actual fact, we're paying depreciation up front ... in cash
say your car is rm80,000
d/payment 15-20,000
loan say rm60,000 ... total loan + interest at the end of say .. 7 years is approx rm80,000
100% loan ...


in the UK, different cost of living, exchange rate difference and different tax structure aside ... HP about 5 years on reducing balance basis like our housing loans
good cars 50k and below

[alfredlim]

Referring to your first posting, those interest should not be compounded for the balances 6 years if you do an early settlement.

BUT, you will have a processing and handling charges (if not mistaken) to be charge to you whenever you wanna do early settlement.

Do check again, the best if with bank negara on this issue.

[alancheong7]

i guess that depends on whether there is a lock-in period or whether the respective financial institution decided to rip us off more.

so far, for HP ... there hasn't been any processing fees or admin charges or any other charge for early settlement ... in my case, as far back as Sept2005 (1.5yrs of loan left) and as recent as Nov2010 (approx 6mths left).
in fact, do ask for your insurance refund/rebate as well when you settle the car loan and your insurance policy has yet to expire

[Allen23]

It depends on the policies of that bank because they are making loan plans according to the instruction of state bank.