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5 Things You Should Know Before You Apply For Your Car Loan

Hold your horses before you proceed to apply for financing of your new ride.

· Personal Finance

In most car buying cases, a huge number people usually wouldn't want to fork out huge lump sum of cash to pay the full amount of the car price. So they opt for financing from the banks but how do most buyers increase their chances of obtaining the approval of financing they need? Our team in Autosentral has identified 5 criteria in improving your chances of getting approval for the car loans you need.

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Car Financing Criteria #1: Guarantors

If you have just set foot on adulthood and planning to get your very own ride for the first time, you will realise that banks would often ask for your application to be included with a guarantor. Very true especially your credit history is non-existent. Banks need to know that they're lending to credible borrowers who are almost for sure to be a good paymaster and if you've just stepped foot in your career, and no prior history of credit repayment, the request of guarantor will certainly be part of the process in obtaining approval for your loan.

Well, doesn't mean submitting any name will guarantee you a loan approval. Bank has also requirement for the guarantor to be of credit-worthy too. As a start for guarantor requirements, their age will need to be over 21 years old, financially stable with good income record and good credit history background. Guarantor can be anyone who's willing to put in the signature to guarantee your repayment of loan. Generally, guarantors consist of spouse with separate bank accounts, parents, siblings, relatives, or even friends. However, bear in mind that when they step in as your guarantor, they will need to take responsibility to cover the repayment, in case you fail to do so.

Car Financing Criteria #2: Interest Rates

Interest rates are generally higher for lower prices and vice versa.

Interest rates also vary based on reference rates, loan amount & tenure, borrower’s credit history, age of car, as well as loan’s promotion by banks that are aggressively pursuing financing targets. In most car loan cases, fixed interest rate loans are offered to borrowers. New cars' financing rate usually ranges from 2.3% - 3.5% while used cars command rates between 3.5% - 4.2%.

The fixed-rate loan facility is calculated on the principal which does not reduce the balance in case you want to make extra repayments to the bank. In few cases, you can opt for flexible car loan facility but the be mindful of the additional penalty payments in case you miss out on payments.

Car Financing Criteria #3: Downpayments

Remember, the more you pay in the beginning as downpayment, the less your loan instalment amount.

Generally, banks in Malaysia finances only 90% of the car value and the balance has to be advanced by the car buyer as downpayment to secure the purchase of the car. Saying that, there are some banks and non-bank financial institutions that offer 0% down payment. That means, you wouldn't be required to pay any cash amount to purchase a car but don't be so happy yet as 0 downpayment also means you pay more interest due to larger financing amount and most crucially, full loan also means higher interest rate compared to normal car loan facility.

Car Financing Criteria #4: Road tax and insurance

Insurance and road tax is a cost that must take into account when purchasing your car. Insurance payments normally are higher than the road tax payment. The premium value depends on the value of the vehicle at any point of time, new or used.

Most times, the bank that offers you the car loan will include your first time insurance payment in the loan amount. Insurer of choice is usually recommended either by the dealership or banks that process your loan application.

Car Financing Criteria #5: Loan Tenure, Repayments, and Early Settlement

How long is generally the duration of the car financing facility? In Malaysia, the car loan repayment period stretches to as short as 5 years to a maximum of 9 years. Depending on the amount of loan and your monthly repayment, the consideration of the approved amount depends also on your debt service ratio. Also, the earlier you pay off your loan, the less interest you pay in the long run.

In Malaysia, banks do practice the Rule of 78 as a guide to help calculate interest charges on loans. As part of the fixed rate borrowing mechanism, borrowers usually pay a higher portion of interest in the earlier stage of the loan tenure, so the potential savings for loan borrowers from paying off the loan early are minimal.

Troubled by car loan application process? You could save up to RM 354.00 for checking your car loan approval score now before you step your foot in any dealerships. The last you want is to spend time test driving, talking to the sales advisors to get the best offer only to find out that the loan approval chance for the car of choice is low.

The car loan approval probability assessment covers:
• BNM Credit & CTOS Referencing
• Estimate Debt Service Ratio Analysis
• Financing Probability Scoring
• Vehicle Pricing Range Recommendation
• Vehicle Preferential Factor Recommendation
• Support to Improve Credit Rating and Financing Eligibility Enhancement Plan
• Best Deals Recommendation