Published on October 3rd, 2017 | by Daniel Sherman Fernandez0
Why you cannot get a NEW or USED car loan
Simple…the lenders (banks and finance companies) are earning too little profits with the current lending/finance rates against their operating costs. On top of that, repossession costs have gone up and holding costs (keeping the car after repossession) are higher today. Let us explain in more detail.
The cost of lending money for a car today is actually quite low. For example, at 3.88% interest for a RM200,000 car loan the lender earns less today as compared to 5 years ago. Why? Well bank premises rentals have gone up. Employee salaries have gone up and so on.
Then if the car owner fails to make the loan payments, the repossession costs are higher today. Then comes the higher storage (car holding costs) costs and issues with parts and items going missing during storage and in transit. To recover losses, the banks need to auction/sell these repo cars and todays higher than ever depreciation will reduce the recovery of funds.
This means, the banks have to then sue the car owner to get the remainder owing monies after selling the car for a loss.
All this comes to reality after years of giving out easy car loans to buyers that really cannot afford to own their cars. This is why Banks and Finance companies today are getting stricter with approvals and tougher checks are done on car buyers to prevent future losses.
Solution for car owners who want to sell their old cars to buy new cars?…..Only buy a new car if you really need to…….maintain and run/use your old car for a longer time. This is a fact of life.
Solution for Car Companies? Start your own car financing/leasing and also your own used car business. You can control the market values and the buyer market.
Solution for Banks and Finance companies? Increase interest rates based on risk management of buyers (good credit worthiness means lower interest rates) and increase down payment values (20-40% down payment for higher risk buyers).
Things have to change to put the market back in the right track and reduce the falling value of new cars leaving showroom floors.
Note, The above is just our suggestion and we are not backed by any financial institution…just years valuing the used car market in Malaysia.