Purchasing a used car allows buyers to obtain a relatively new vehicle in good condition at lower prices than buying a brand new one.
In addition to good deals, used car buyers also enjoy better price retention after purchase as vehicles typically depreciate the most in the first three years after being driven out the showroom doors.
However, whilst one typically pays less for a car the older it gets, the ‘catch-22’ is that interest rates and financing limits will vary. Thus, whilst it may be cheaper, you may end up paying substantially more in interest and have to cough up a higher downpayment for an older car.
Additionally, it is perhaps also confusing given banks may have different interest rates and small differences in term limits. So here simplified guide of 3 important factors with regard to used vehicle financing.
Margin of financing
So let’s say you have your eyes set on a used 5-year old Perodua Myvi worth RM 40k. Your maximum margin of financing will be 90 percent of the total value of the car.
In this case, the bank will typically give you a hire purchase loan of RM 36k (90 percent), and a further RM 4k (10 percent) is paid as a downpayment by you.
Most financial institutions will offer maximum financing of up to 90 percent, for most popular vehicles under 9 years of age (from date of manufacture). In most cases, the minimum loan amount is RM 20k.
However, the margin of financing can also depend on the type and age of the vehicle, and this may vary from bank to bank. Certain vehicle models – typically luxury and performance cars – will not qualify for a 90 percent financing margin despite being newer than other cars.
A good example of this, a 5-year old Toyota GT86 will struggle to get 80 percent financing, whilst a 7-year old Honda City will still get 90 percent financing without much fuss.
Tenure of loan
The tenure of the loan simply determines how long you will take to repay the debt of your hire purchase loan. The longer the tenure, the lower the monthly repayments will be, although you’ll be paying more interest over the course of the loan as a result.
Here are some handy notes on hire-purchase loan tenures:
- Minimum tenure: 3 years (36 months)
- Maximum: 9 years (108 months); subject to:
- Retirement age of the borrower; and
- Maximum 12 to 15 years of vehicle age (from year of manufacture) at the end of the loan tenure, depending on the bank / lender
Thus if you’re planning to take a 9-year loan on a used vehicle, the vehicle must be less than 6 years old (at least) when you buy it.
However, note that not all banks offer 9-year hire purchase loans up to a maximum vehicle age of 15 years old. The above example is offered by Bank Simpanan Nasional (BSN) but this may vary from bank to bank.
Also read: 5 used cars on a salary of under RM 5,000. What’s the minimum salary / monthly repayment needed?
Some conventional banks only allow up to a total vehicle age of 12 years, whilst credit finance companies may allow up to 16 years, but at much higher interest rates.
Interest rates
Interest rates for used higher purchase car loans are typically higher than new car loans and are offered at either fixed or variable interest rates.
Most new car interest rates typically on popular car models typically range between 2.8 – 3.8 percent per annum.
Interest rates for used vehicles typically is typically around 0.5 to 1 percent more per annum – thus expect to pay between 4.0 – 4.5 percent in most cases.
So whilst you may be purchasing the car at a lower price, you could be paying just as much or more interest over the loan tenure, as illustrated below:
| New vs Used interest loan repayment | ||
|---|---|---|
| New car | Used car | |
| Car price (RM) | 55,000 | 40,000 |
| Downpayment (RM) | 5,500 | 4,000 |
| Financing amount (RM) | 49,500 | 36,000 |
| Interest rate (&) | 3.2 | 4.4 |
| Loan tenure | 7 years (84 months) | |
| Monthly repayment (RM) | 721.29 | 560.57 |
| Total interest paid (RM) | 11,088 | 11,088 |
| Total repayment (RM) | 60,588 | 47,088 |
With that said, if you’re in the market for a used car, it is important to first establish a proper budget taking into account more than just the monthly repayments but also the age, interest rates and maximum loan tenure prior to evaluating the right car for you.
Buyers need to look beyond the sale price and also consider the other factors that will influence the buying process and ultimately, determine how much you spend over the entire course of ownership.
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All Carsome vehicles are meticulously inspected and presented with a 1-year warranty, a 5-day money-back guarantee and competitive financing packages to suit any budget.
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Source: Applying a loan to buy a used car? Here’s what to expect on interest rates and tenure (years)
