Banks raise loan rates and fixed-rate car loans are not affected!
As national banks raise their overnight policy rates (OPR), domestic banks are also starting to raise their lending rates. If you have a home loan, then you will bear the brunt of the bank’s rate hike. On the other hand, car loans are generally not affected unless you have a variable rate loan.
Most auto loans on the market have fixed rates, but some banks offer borrowers floating rate auto loans. So how can you tell if you have a fixed rate or a variable rate car loan?
In fact, when you sign the loan agreement, it is clearly stated in the contract whether the car loan is at fixed or floating rates. If you are still not sure which interest rate you are using, you can tell by the interest rate of your loan.
If your car loan is around 2% to 3%, then your car loan is on a fixed rate. If your car loan interest rate is in the 5% to 6% range, then your car loan is a variable rate loan.
If you have a variable rate car loan, the bank’s increase in interest rate will affect you and your monthly loan payments will increase. For example, if you were paying about RM700 per month for your car loan, you may have to pay RM10 more per month after the interest rate increase.
For those who have a variable rate car loan, you should check with your bank to find out how much you need to pay each month after the interest rate increase, so that you can avoid underpaying your loan and face default.
1. Fixed Rate
Simply put, a fixed rate loan is a loan that is calculated based on the principal amount and the term of the loan and is amortized monthly.
If you take out a loan of RM100,000 at 3% per annum for 5 years (i.e. 60 months), the interest payable over the 5 years will be RM100,000 X 3% X 5 years = RM15,000, which is equivalent to RM250 per month, for a total monthly installment of RM100,000 + RM15,000 / 60 = RM1917, so the interest (RM250) accounts for 13% of the monthly payment ( Therefore, the interest (RM250) accounts for 13% of the monthly payment (RM1917).
2. Variable Interest Rate
The floating interest rate is based on the market fluctuations and determines the amount to be amortized, which may vary from one installment to another. The floating interest rate is generally calculated based on the Malaysian Basic Lending Rate (BLR), but with each payment, the loan balance is reduced and the interest rate is also reduced by the loan balance. Therefore, the principal and interest will be reduced for each installment, which is the biggest difference from the fixed rate.
In other words, if you take out a loan of RM100,000 at 6.75% per annum as an example, the total amount of interest to be paid over a 5-year repayment period would be RM17,440. However, to accurately calculate the monthly interest payment for a variable rate loan, it is important to use a financial calculator and or amortization table to do so.
