Car loan, beware of the risk of burning a hole in your pocket

Currently, many commercial banks are launching a series of preferential loan packages for car purchases. However, borrowers must meet many criteria, so they need to carefully calculate their financial capacity.

Race for incentives

According to the Vietnam Automobile Manufacturers Association (VAMA), in 2016, people bought 304,427 cars, an increase of 24% 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 on the market every day. The reason is that in recent years, people's income has been increasing, leading to the need to own a car. Grasping this trend, banks have partnered with distributors to provide car loans, helping buyers easily access loans with many incentives.

Even with bank support to buy a car, before taking out a loan, customers need to consider, calculate seriously and prepare well financially before signing the contract to avoid future risks.

Currently, compared to other consumer loan products, car loans are considered a highly preferential product. Notably, when interest rate competition has become too common, banks have begun to compete on loan limits and terms. For example, Vietcombank lends up to 70% of the car's value if secured by the car itself, and up to 100% of the car's value if secured by other assets. BIDV lends up to 100% of the car's value with a maximum term of 7 years. VietBank even lends car loans secured by the car itself with a term of up to 120 months, with a loan limit of 100% of the contract value.

At the same time, this bank also supports preferential interest rate loans for cars used for less than 3 months, if customers borrow from relatives or friends to buy a car 3 months in advance. This is a new form of competition, because normally cars purchased within 3 months are considered used cars, so banks usually do not apply preferential interest rates.

In parallel, banks also offer super-fast car loans, such as shortening the time to process documents from 48 hours to 8 hours, or issuing a loan commitment within 4 hours from when the customer provides complete documents, and disbursing within 2 hours after the customer has an appointment to pick up the vehicle registration. Some banks also commit to customers owning a car within a maximum of 4 hours after submitting a loan application to the bank.

Be careful before deciding to borrow

A sales staff of a Toyota dealership in Ho Chi Minh City said that in the past year, out of 10 people who came to ask to buy a car, about 4-6 people wanted to borrow money to buy a car. According to this staff, buying a car on installment can be done in 3 forms: the buyer contacts the bank to borrow money and brings the money disbursed by the bank to the dealership; the dealer is an intermediary between the bank and the buyer; the dealer lends money to the buyer without going through the bank in the form of a financial car lease contract. In particular, the dealer form is an intermediary chosen by many buyers, because the dealers have negotiated in advance with a number of banks to be ready to give customers preferential loans, such as reducing interest rates, shortening approval time, disbursement, etc.

Regarding preferential loan packages of banks, with experience in loan procedures for customers, this employee said that although the interest rates, maximum loan value and loan term announced by banks are very attractive, in reality, banks divide customers and car groups, from which they apply different interest rates and loan terms. When wanting to borrow capital, in addition to a stable income to repay the debt, customers need to prepare an amount of 20-50% of the value of the car because banks only lend up to 80% of the value of the car. At the same time, the super-fast loan service is only available to customers with high credit ratings, while most customers have to spend a lot of time for banks to review conditions before granting credit.

With experience in buying a car on installments, Mr. Hoang Phuong, residing in District 8, Ho Chi Minh City, shared that he bought a car for 750 million VND, paid 50% in advance and borrowed the remaining 50% in 3 years. However, in addition to the 375 million VND in advance, Mr. Phuong noted that the buyer needs to prepare other costs. For example, at that time, he had to pay a 15% registration fee of 112.5 million VND. After borrowing, he had to buy physical insurance for the car body at 1.65%/year, equivalent to 12.3 million VND/year during the loan period and transfer the insurance benefit to the bank.

In addition, some banks also stipulate an administrative fee of about 2 million VND/loan. When approaching a loan, buyers should not only look at the preferential interest rate but also carefully ask about the interest rate after the preferential period to calculate the ability to repay the debt, as well as late payment fees, prepayment fees, etc.

Because most banks after the preferential period usually apply a 12-13 month mobilization interest rate plus a margin of 3.5-4%, therefore, the interest rate will be up to 11-12%/year. If the market interest rate risk increases but the borrower does not have a reserve fund, it may lead to the bank confiscating the car and auctioning it to collect the debt. Therefore, even with the bank's support to buy a car, before participating in the loan, customers need to consider, calculate seriously and prepare well financially before signing the contract to avoid future risks.

According to VNN