How To Select A Car Loan

Car buyer’s ‘belief’ has improved and to strike into this opportunity, the car manufacturers are all set with a number of new launches and lucrative deals to pace up their opinions. Experts say that almost 80% of new car purchases are financed through loans. Most of the banks and NBFCs (Non Banking Financial Company) attract consumers with a discount of about 0.25-1% on interest rate of car loans during the festive season. Dealers also offer good cash discounts and freebies at this time.

If you too are planning to buy a new car, and a car loan for it, you can contact either a bank or an auto finance company. And to help bag a deal that ideally fits to your requirements, we at Cardekho have brought best way to make your choice from the various options of financial services in collaboration with Bankbazaar.com

First and foremost, choose the car that suits your requirements and fits in your decided budget. List at least 2 cars in the similar price range so that you can compare them and select the one with the best finance deal.
After choosing the car, search for the loans being offered by different banks/finance companies. While examining the loan schemes provided by the various financial institutes you should keep in mind certain points:

Check with your bank if they provide any scheme for the existing customers. There is a possibility of finding a better deal if you have a good credit history with your bank.
Fixing the tenure of the loan will certainly help you to compare loan schemes offered by various financial institutes. While the auto loan tenure offered by a car finance company may typically last for as much as 5 years (60 months), the banks offer a longer duration of up to 7 years (84 months).

The next deciding term that may affect your choice of best car loan deal is interest rates. Banks usually apply same interest rate for most of the customers whereas car finance companies offer rates on a preferential basis to maintain customer “loyalty”.

This brings us to the next question: who offers a better rate? You can get the answer by visiting our car loan section to compare the interest rates offered by a list of various banks and car financing agencies. Car finance companies often provide loans at cheaper rates on specific models or variants. Some banks might give you loan at lesser interest rate at high processing fee while others might not charge processing fee at all on higher interest rates. Calculate the final cost of loan before considering one out of the two options.

Before finalizing the loan source, compare the schemes on the basis of eligibility, rate and cost. For comparing the interest rates and cost offered by various financial institutes, visit cardekho.com’s Car Loan section. It has been noticed that manufacturers periodically subsidize the loans without reducing the sticker price of the vehicle. Transparency in the terms and conditions of the loan are significant so that there are no issues later. Always give importance on the aspects such as speed of sanction and disbursement and quality of service, both prior and post-disbursement. Whether a bank or a car finance company, the basic steps don’t change so research about the auto loan that are being offered online on the first base. Visit the online finance portals such as Cardekho Car Loan. Then compare the total cost of the loan and EMIs and evaluate your repayment ability and after that, choose a lender that is most suitable to your requirements.

Loan With A Purpose

Many smaller investors are willing to offer loans to borrowers who do not want a loan from a traditional financial institution.  The slightly higher costs of the loan are often worth it, considering borrowers will avoid the many hassles and daunting requirements of traditional lenders.

With a willing lender and a willing borrower, what could possibly go wrong?  The short answer is that a lot can go wrong.  Besides the obvious, such as defaulting on the loan, there is one trap for the unwary lender that should not be ignored: the loan’s purpose.

Why does the purpose of the loan matter?  Because when a default does occur on a loan, the stated purpose of the loan may have a dramatic effect on the lender.  There are many varieties and types of loans, but they all fit into one of two categories: business or personal.

Let us say that as a smaller investor, you want to make loans of a business nature.  The borrower comes to you and says that the loan is for construction for a business.  To most it would seem to be a no brainer: it’s a business loan.  If it is a business loan, then all of the documents need to state the business loan as the purpose.

Why is it important to state the purpose of the loan in the loan documents?  Because if the purpose of the loan is not stated in the documents, and the loan defaults, the lender could be found to be a usurious lender in the state of Washington.  The Washington Supreme Court recently issued an unpublished opinion in which a small investor was found to have charged a usurious rate of interest because it did not state the loan’s purpose as business within the loan documents.  It was therefore a personal loan.  Personal loans have far more controls regarding interest rates than do business loans, and the lender was substantially financially penalized for charging too high of an interest rate on what was deemed as a personal loan.  No Oregon case has directly confronted this issue.  A perusal of cases would indicate a potentially similar result in Oregon if brought through the courts.

The test for whether a loan is a business or personal loan is seen from the eyes of the borrower, not the lender.  If the loan documents do not say anything, then the loan purpose is determined by the borrower’s subjective statements of the purpose.  The takeaway?  The borrower and lender need to agree to the purpose of the loan and put it in writing in the contract.

It is not hard to make a loan business instead of personal in nature, if in fact it is for business.  A clause simply needs to be inserted into the loan documents that states the business purpose of the loan.  The clause just needs to say that the borrower and lender agree that the loan’s purpose is for business with a brief mention about the ultimate use of the loan proceeds.  If the lender requires a personal guarantee for a loan made to a business, then similar language also needs to be included in the personal guarantee.  It is important to note that placing a statement of business purpose for a loan in the recitals of the loan document, if there is a recitals portion, may not work for creating a business purpose in the loan documents, unless the recitals become incorporated into the operative portion of the contract.

Sometimes simple things get overlooked.  If you are offering small loans, make sure you do not overlook the importance of stating the purpose of a business loan in the loan documents and any guarantees.  Without paying attention to the addition of the “business purpose” clause to each of the loan documents, a small investor making loans could end up on the wrong end of a court decision.

Many smaller investors are willing to offer loans to borrowers who do not want a loan from a traditional financial institution.  The slightly higher costs of the loan are often worth it, considering borrowers will avoid the many hassles and daunting requirements of traditional lenders.

With a willing lender and a willing borrower, what could possibly go wrong?  The short answer is that a lot can go wrong.  Besides the obvious, such as defaulting on the loan, there is one trap for the unwary lender that should not be ignored: the loan’s purpose.

Why does the purpose of the loan matter?  Because when a default does occur on a loan, the stated purpose of the loan may have a dramatic effect on the lender.  There are many varieties and types of loans, but they all fit into one of two categories: business or personal.

Let us say that as a smaller investor, you want to make loans of a business nature.  The borrower comes to you and says that the loan is for construction for a business.  To most it would seem to be a no brainer: it’s a business loan.  If it is a business loan, then all of the documents need to state the business loan as the purpose.

Why is it important to state the purpose of the loan in the loan documents?  Because if the purpose of the loan is not stated in the documents, and the loan defaults, the lender could be found to be a usurious lender in the state of Washington.  The Washington Supreme Court recently issued an unpublished opinion in which a small investor was found to have charged a usurious rate of interest because it did not state the loan’s purpose as business within the loan documents.  It was therefore a personal loan.  Personal loans have far more controls regarding interest rates than do business loans, and the lender was substantially financially penalized for charging too high of an interest rate on what was deemed as a personal loan.  No Oregon case has directly confronted this issue.  A perusal of cases would indicate a potentially similar result in Oregon if brought through the courts.

The test for whether a loan is a business or personal loan is seen from the eyes of the borrower, not the lender.  If the loan documents do not say anything, then the loan purpose is determined by the borrower’s subjective statements of the purpose.  The takeaway?  The borrower and lender need to agree to the purpose of the loan and put it in writing in the contract.

It is not hard to make a loan business instead of personal in nature, if in fact it is for business.  A clause simply needs to be inserted into the loan documents that states the business purpose of the loan.  The clause just needs to say that the borrower and lender agree that the loan’s purpose is for business with a brief mention about the ultimate use of the loan proceeds.  If the lender requires a personal guarantee for a loan made to a business, then similar language also needs to be included in the personal guarantee.  It is important to note that placing a statement of business purpose for a loan in the recitals of the loan document, if there is a recitals portion, may not work for creating a business purpose in the loan documents, unless the recitals become incorporated into the operative portion of the contract.

Sometimes simple things get overlooked.  If you are offering small loans, make sure you do not overlook the importance of stating the purpose of a business loan in the loan documents and any guarantees.  Without paying attention to the addition of the “business purpose” clause to each of the loan documents, a small investor making loans could end up on the wrong end of a court decision.

A Personal Loan

There are several ways to apply for a loan; however you should always get yours from a financial or banking institution that is licensed by Bank Negara Malaysia. You must avoid borrowing from illegal moneylenders, as you may end up further in debt from their unregulated interest charges and practices.

Instead, you should always choose to use a reputable bank that offers you great service and one that can cater to your financial needs at all times.

Ideally, you should always keep your debt service ratio below 60% to ensure you have the best chances of getting your loan approved. You should also keep in mind that banks may calculate the interest based on the total amount, the loan tenure and your credit score.

When applying for a personal loan, banks will usually agree to let you borrow up to three to four times of your monthly income to ensure you don’t overextend your finances. Most banks in Malaysia also issue personal loans at an average amount of RM20,000 – RM50,000 based on factors like the borrowers’ debt service ratio, monthly income and credit history.

It was mentioned earlier about how the banks will calculate the interest rate on personal loans (the total amount, loan tenure and your credit score) that you need to know.  So, one way is to choose a shorter loan tenure with higher monthly instalments that you can pay off quickly to save on the interest charges.

There is more to getting the best deal on your personal loan than just looking for low interest rates.  For example, if the personal loan offers cash back on interest paid, this would mean that if you took a personal loan at an interest rate of 10%, a 20% cash back on interest paid would mean that you are actually repaying the bank at an interest rate of 8%!

With that in mind, make sure you check out what deals the banks have to offer, as you could save yourself hundreds of Ringgit!

The approval process is much faster these days and you can now even get your personal loan approved within 48 hours to even under an hour. Remember to bring along your MyKad and any necessary documents required by the bank to speed up the process even further!