14 Jun 2012 | Text by Martin H. S | Category: Car Buying Advice
Choosing the right company to finance your car loan can be just as confusing as deciding what car to buy and how to pay for it.
Fixed or floating?
The interest rate variable essentially defines a loan, any loan. I'm sure you'll agree with us that the less you are burdened by the interest, the greater life will be. But what are your options regarding interest rates. Well for starters, most financing companies in Indonesia, whether intermediaries such as banks, or pure financing companies, offer fixed interest rates regarding car loans. But there's also the floating interest rate.
A fixed interest rate car loan will typically say something like 6.25% p. a. (per annum) during a credit term of 3 years. This means that someone who takes up the loan will be required to pay a yearly additional 6.25% of the principal after down payment.
Floating interest rates? Well, they float. Mainly relative to the interest rate of Bank Indonesia Certificate (Sertifikat Bank Indonesia/SBI) determined by our central bank, the Bank Indonesia, banks and financing companies will adjust their own interest rates to maintain a certain profit margin, or in financial terms, the spread. Consequently, a car loan of this type could have its interest rate fluctuate. A little bit of uncertainty that could go either way.
There's also something called balloon installments/payments. It's quite new here, but are nevertheless starting to be offered. One of the reputable financing companies currently promoting a car loan with this scheme is BCA Finance. Balloon installments can be described as a credit plan that will have the debtor pay accumulated sums or installments that are primarily made of the principal during the later period of the credit term. The earlier series of the installments itself are primarily interest with minimal amount of the principal. Also, the installments to pay during the later stages of the loan will usually be larger. Hence, this scheme will more likely benefit those with irregular or seasonal sources of income.
A good company will try to protect the rights of its prospective debtors as much as it will try to protect itself from liabilities. The tell-tale signs of this are reasonable procedures, openness during inquiries, and a conformity between what is said in promotional releases and what is revealed upon deeper inquiry. So, be sure to ask tough questions.
Interestingly, the more detail-attentive a particular financing company is in screening its prospective debtors, the more likely the rights of the debtors will be comprehensively protected in the credit contract. Don't be put off by the extensive process to undergo or the extra requirements to prepare. Just remember to read everything carefully. Understand what is mentioned to you in the event of the referred situations. Ask if anything isn't clear to you.
With car loans, you'll also be introduced to in-package car insurance. There are two typical types of car insurance, namely All Risk and Total Lost Only (TLO). The latter commonly only cover the case of vehicle loss to theft with a coverage duration of up to 12 years. All Risk on the other hand, has a much wider coverage. In addition to theft, the vehicle will also be covered against the risk of accidents, riots and natural disasters.
|-||Each type of interest rate provides certain benefits to consumers. So, it's up to every individual consumer to pick the one that fit their needs as well as condition.|
|-||But as the rule of thumb, if your income is regular and fixed, a car loan with fixed interest rate is the better choice.|
|-||A floating interest rate is also an option, but do consider that the interest rate market swings either way and consumers could find themselves with more to pay.|
|-||If your anticipated income is seasonal, whether in time or amount, baloon installments provide a greater degree of flexibility in managing the amount to pay in respect to time and money coming in.|
|-||Conclusively, it would certainly make sense to get a credit plan with the lowest interest rate, but company reputation and the due process should also be taken into account.|
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25 Aug 2011 | Reproduced with the permission of sgCarMart.com | Car Buying Advice