Published on April 17th, 2023 | by Daniel Sherman Fernandez0
Will Banks Repossess An Electric Vehicle If Owner Does Not Pay
There is a rising demand for loans for new electric vehicles but will banks take the risk of repossession.
When you buy a new vehicle on loan, you need a loan, well most of us do, there are some Malaysians (a very small percentage) who will pay cash.
With low interest rates it is better to take a loan for a new electric vehicle and keep your cash (if you happen to have a lot of excess cash sitting in your savings account) in a fixed deposit where the interest rate is higher or just have your excess cash working for you in our fun filled stock market.
Now, in the last year, we have seen a surge in electric vehicle (EV) demand in Malaysia and with some lower priced models arriving from China and Korea, it has prompted some middle class Malaysians to look at EV ownership.
This has also promoted some financial institutions to offer preferential interest rates for loans on brand new electric vehicles. In July 2022, local bank RHB offered Green Financing for hybrid vehicle, plug-in hybrid vehicles and also full EV’s at just 2.06 percent per annum.
Even Maybank encouraged the purchase of EV’s with better interest rates, higher financing margins and up to 108 months of financing tenure. Plus, to sweeten the deal, they even offered discounts at public charging stations and free gifts.
Then there is CIMB who came to the table with similar offerings like with Maybank for EV financing.
Now, we all know that banks are in the business of lending money and earning interest. When taking a loan for any car, even an electric car, you must make your monthly payments without fail.
If you fail to make your payments after 3 to 4 months, your car (which is actually owned by the bank until you make full 100 percent payment) will be repossessed.
All banks out-source the repossession of vehicle from loan defaulters to private companies and then there is storage of the repossessed vehicles until the defaulter pays up the owed money to the bank or the vehicle is auctioned to the highest bidder.
Now, with electric vehicles, storage is not a good idea at all. The longer the electric vehicle is stored the issues of battery decline rises.
You cannot leave an EV in-active for months without charging the battery. If you do, the battery will slowly ‘die’ and to wake up the battery might be impossible.
FACT: It is important to note that even when an EV is not being driven, the battery will still discharge very slowly to power the onboard electronics. The battery can discharge at a rate of approximately 1 percent per day. However, the discharge rate may vary depending on environmental factors (such as hot weather) and vehicle configurations.
Some EV manufacturers claim that as a standard rule of thumb, it is recommended that the battery level is always maintained between 50 percent to 80 percent (but you cannot control this at the point of being repossessed).
Whether to leave the EV plugged in or not, this is best to refer to the manufactured guidance as all electric cars are made differently and may have different battery management systems in place.
So, as more Malaysians buy shiny new EV’s, banks are taking the risk of having regular payments made without issues.
However, if bad payments arise and EV’s need to repossessed, the auction values will probably be 20 percent or less of the actual value of the EV’s as the expensive battery might need to be changed and we are aware of the high prices from RM50k to RM100k for the average EV battery (before installation costs are added).