Saturday, May 28, 2011

Car Loan - Shorter or Longer Tenure/With Down Payment or Full Loan?

The other day hubby and me were talking about car loan tenure - whether shorter tenure or longer tenure will be more beneficial. For a wage earner like me, I prefer to make larger down payment with shorter tenure. Which means that I will save a certain amount of money first before purchase a car and will try to settle the loan repayment within the shortest tenure possible. Of course, I must be comfortable with the monthly repayment. My main aim is to own the car as soon as possible and at the same time to reduce the loan interest. The shorter the loan tenure, the less interest I have to pay.

Hubby totally have a different point of view. He prefer to take full loan and to have the longest tenure available. His reasons as below:
1) The car value will depreciate. So, he said there's no point to rush to settle for something which the value will depreciate. The car is just another daily necessity, not an appreciating asset. So, he tries to minimize monthly repayment value by taking the longest tenure available. Longer tenure means smaller monthly repayment and small monthly repayment means he'll have additional cash for other matter (his business).

2) Full loan because he no need to fork out his money for down payment. He can use the money which supposed to be used as down payment as his business cash flow. This will increase his business profit (use money to make more money).

What is your view?


  1. I support your husband view as long as the percentage of business ROI is higher than the car loan rate.

  2. Hello Anonymous, seems like you have the same business point of view as my husband. I am still learning to look at things differently :) You are right, most important part, the Return of Investment (ROI) is higher than the car loan rate. Thanks for dropping by.

  3. I have the same thought with your husband.

    Car is a liability to me, not an asset which does not produce positive cash flow to me.

    The longest tenure bring me the lowest repayment. If you notice repayment amount of RM500 in 2015 will be lesser than RM500 at now as currency is depreciating so much.

  4. Hi 雷門 , another supporter for hubby's view :) I do agree when you said that RM500 in 2015 is much lesser compare to RM500 now (2011). Thanks for your comment.

  5. The monthly repayment is fixed while you applying hire purchase loan. This also mean the interest is fixed.

    Therefore, it is good timing while the interest rate of hire purchase loan is lowest.

    This idea also applicable to those stuff which depreciating time to time.

    Always look at value, instead of currency.

  6. For housing loan, I tend to think it is better to drag the tenure of loan as long as possible.

    But unlike housing loan, the interest, even for the last instalment is charged based on the original principal amount.

  7. Hi OBH :) hmmm... dragging housing loan too long is causing the real house value become double or tripple... anyway, thanks for dropping by :)

  8. Hi Yan. I really like your blog. It is very helpful for students like me who are new in venturing into the adult era from the teenage years where parents take care of most things. But I would like to ask for some suggestions on how to make extra pocket money or monthly allowance for IPT students like me. We barely have extra time in our day, so how can we make some extra $$$ to cater our needs & for savings?

  9. Hi Student$, thanks for dropping by and great that you enjoy my blog. I always hope my sharing can benefit others.

    Hmm.. I think as a IPT student, you'll have some free time except those time near your final exam where you'll have tonnes of assignment and final exam. Because first of all, you'll need some time before you can make extra money. I learned that a lot of IPT students make money by doing part-time job at convenient store, fast food outlet, boutiques, etc. Or, you can sell your 'talent @ special abilities' like writing articles, giving tuition, teaching music. I believe you'll enjoy doing it. Perhaps I can consider to write a post on how to get extra $$$ for students :p

    Btw, it's really great that a young IPT student like you is thinking on how to make extra $$$ for saving :) All the best!

  10. Thanks Yan. I'll definitely be looking forward to that post of yours. Perhaps you can elaborate on how students can 'sell their talents' & certain jobs they can do from home (writing articles & etc). I do write articles, but they were never published. Little did I know that they could be a source of $$$ for me.
    Thanks for your help. I'll be rooting for that post ;)

  11. Hi Student$, I had just published a post on some ideas how students can make extra money. Hope you get some idea from there. All the best!

  12. I support your husband's view because, hire purchase loans are fixed rate. In a sense you are leveraging your finance with other people's money. However, i also support you views too, it is because you dont want to spend unnecessary interest rate amount. For car loans, its unlike to get a rebate if you settled earlier if you are in the mids of loan servicing, but then again, today, car market is unlike before, its not serving you to point A to point B but its also a fashion trend. A car for a specific function. Also, longer tenure car loans means you wont be selling or change the car any time sooner, but you'll drive it till it finishes the loan amount... Then again, it is based on yhe affordabili and where the money you want to plan for..


  13. Hi Sheridan, thanks for dropping by and for your comment too :)

  14. HI Yan,

    seem i missed the flight.. hehe.. hope is not to late to share my view..

    as a makan gaji guys, i more agreed with your idea.. because return of interest margin is lesser compare to hp interest i able to avoid.. ..actually i just bought 1 car.. whereby i dump 10% as down payment and tenure to 6year.. for example paying 750 for 9 years versus paying 1050 for 6year.. additional 300 permonth, or 3600 peryear.. or 21,600 for 6years.. if let say i invest 3600 in fd with 3.5 profit per year the margin that i get is arround RM126.. compare to hp interest of 3 years that i able to avoid which is arround 6k..

    1. hi there, thanks for dropping by and for your sharing :)

  15. Great tips and very easy to understand. This will definitely be very useful for me when I get a chance to start my blog. Thanks for this very useful info you have provided us. I will bookmark this for future reference and refer it to my friends. More power to your blog. weight loss programs online