Car loans: Beware of the risk of going broke.

Currently, many commercial banks are offering a range of preferential car loan packages. However, borrowers must meet numerous criteria, so careful consideration of their financial capabilities is necessary.

The race for incentives

According to data from the Vietnam Automobile Manufacturers Association (VAMA), in 2016, people purchased 304,427 vehicles, a 24% increase compared to 2015. This is a record increase in the past 20 years. VAMA forecasts that consumption in 2017 will increase by about 10%, with an average of about 845 cars sold per day. This is due to the increasing income of people in recent years, leading to a greater demand for car ownership. Taking advantage of this trend, banks have partnered with dealerships to provide car loans, making it easier for buyers to access financing with various incentives.

Even with bank support for car purchases, customers should carefully consider and prepare their finances before signing a loan agreement to avoid future risks.

Currently, compared to other consumer loan products, car loans are considered highly advantageous. Notably, with interest rate competition becoming widespread, banks are now competing on loan limits and terms. For example, Vietcombank offers loans up to 70% of the car's value if secured by the car itself, and up to 100% if secured by other assets. BIDV offers loans up to 100% of the car's value with a maximum term of 7 years. Even VietBank offers car loans secured by the car itself with terms up to 120 months and a loan limit of 100% of the contract value.

At the same time, this bank also offers preferential interest rate loans for used cars that have been used for less than 3 months, if the customer borrowed from relatives or friends to buy the car within the previous 3 months. This is a new competitive advantage, because normally cars purchased within the last 3 months are considered used cars, so banks usually do not apply preferential interest rates.

In parallel, banks are also offering super-fast car loan services, such as shortening the application processing time from 48 hours to just 8 hours, issuing loan commitments within 4 hours of the customer providing all necessary documents, and disbursing funds within 2 hours of the customer receiving the vehicle registration appointment. Some banks even guarantee that customers will own their car within a maximum of 4 hours of submitting their loan application.

Be cautious before deciding to borrow money.

A salesperson at a Toyota dealership in Ho Chi Minh City said that in the past year, out of 10 people inquiring about buying a car, about 4-6 people need to take out a car loan. According to this salesperson, buying a car on installment can be done in three ways: the buyer contacts the bank directly to secure a loan and brings the disbursed funds to the dealership; the dealership acts as an intermediary between the bank and the buyer; or the dealership provides the buyer with an installment loan directly, bypassing the bank, in the form of a financial lease agreement. Of these, the dealership acting as an intermediary is the most popular choice, as dealerships have already negotiated with several banks to offer customers preferential loan terms, such as reduced interest rates and shorter approval and disbursement times.

Regarding preferential loan packages offered by banks, based on experience in processing loan applications for customers, this employee stated that although the interest rates, maximum loan amounts, and loan terms announced by banks are very attractive, in reality, banks categorize customers and vehicle types, applying different interest rates and loan terms accordingly. When applying for a loan, in addition to a stable income to repay the debt, customers need to prepare 20-50% of the vehicle's value because banks only lend up to 80% of the vehicle's value. Furthermore, the expedited loan service is only available to customers with high credit ratings, while most customers face a significant amount of time for bank approval before credit is granted.

Based on his experience with car loans, Mr. Hoang Phuong, residing in District 8, Ho Chi Minh City, shared that he bought a car for 750 million VND, paying 50% upfront and borrowing the remaining 50% over 3 years. However, in addition to the 375 million VND down payment, Mr. Phuong noted that buyers need to prepare for other costs. For example, at that time, he had to pay a 15% registration fee, which was 112.5 million VND. After taking out the loan, he had to purchase comprehensive car insurance at 1.65% per year, equivalent to 12.3 million VND per year for the duration of the loan, and transfer the insurance beneficiary rights to the bank.

In addition, some banks also charge an administrative fee of around 2 million VND per loan. When applying for a loan, buyers should not only look at the preferential interest rate but also carefully inquire about the interest rate after the preferential period to calculate their repayment ability, as well as late payment fees, early repayment fees, etc.

Because most banks, after the promotional period, usually apply a 12-13 month deposit interest rate plus a margin of 3.5-4%, the interest rate will reach 11-12% per year. If the risk of rising market interest rates increases but the borrower does not have a reserve fund, it could lead to the bank seizing or foreclosing on the vehicle to recover the debt. Therefore, even with bank support for car purchases, customers need to carefully consider and prepare their finances well before signing a contract to avoid future risks.

According to VNN