Borrowing money to buy a car: Be careful, you might end up losing your car due to debt.

With abundant capital, many joint-stock commercial banks are stepping up lending to customers for purchasing cars, both new and used, at fairly favorable interest rates.

Partnering with pawnshops as well.

The race among banks to offer preferential car loans is heating up daily. If you borrow money from VP Bank to buy a car, you can use the car itself as collateral with a preferential interest rate of 5.5% per year for the first 6 months, after which the interest rate will be based on market rates. Meanwhile, TP Bank offers a preferential interest rate of 8.8% for the first 8 months. Other joint-stock banks such as VIB, Ocean Bank, Techcombank, etc., offer car loan interest rates ranging from 12-14% per year.

Some banks are even competing with loan sharks by venturing into the car pawning business.

Specifically, this bank partners with several car dealerships. When a customer needs money, they simply call a bank employee. This employee will guide the customer to bring their car to a partner dealership for assessment of its condition and price. Afterward, the bank will lend the customer the money, and the car will be left at the dealership. Once the principal and interest are repaid, the customer can retrieve their car. If they fail to repay, the car will be sold, and the bank will recover its money.

Banks are competing to lower interest rates on car loans (photo: TBKTSG).

Thus, banks are not only partnering with authorized new car dealerships, but are also expanding their partnerships with smaller, independent used car dealers to provide loans to customers buying used cars.

The general director of a company specializing in used car sales revealed that approximately 10 joint-stock banks have partnered with the company to provide loans to customers.

According to calculations, with current interest rates, a customer borrowing 500 million VND to buy a car over a 5-year period will have to pay approximately 150 million VND in interest, meaning a total of 650 million VND including principal and interest. Divided equally over 60 months, this amounts to nearly 11 million VND per month. For smaller loan amounts, the monthly payment would be lower.

With car pawning services, the interest rates are much more reasonable compared to illegal lending. If you borrow from illegal lenders, for every 1 million VND borrowed, you have to pay 2,000 VND in interest per day, which amounts to 72% per year, while banks only charge around 20% per year.

The CEO stated that out of every 10 people who buy a car, 3-4 do so through installment payments or bank loans. Everyone is well aware of the interest rates and the monthly payments, and they don't complain.

Be careful not to lose your car.

According to banks, the demand for car loans is increasing and will continue to increase. Therefore, car loan programs are also highly competitive in terms of interest rates, loan-to-value ratios, and loan procedures. For example, the procedures are quite simple, and disbursement takes only 8 hours after completion. For used cars, customers will only have to pay appraisal fees and purchase comprehensive insurance through the bank; otherwise, they will not incur any other fees when signing the loan agreement.

Customers should carefully read the terms of the contract when borrowing money from a bank to buy a car, to avoid situations where they lose their car before paying off the debt (illustrative image).

However, without careful financial planning and calculation, borrowers can easily become overwhelmed by debt. This is a long-term loan, so stable and sustainable income is essential; otherwise, it will be difficult to ensure timely payments to the bank.

Failure to make payments on time will cause problems. Customers may even have to sell their car to pay off the bank, suffering losses if they can't sell it at a good price. There have been many cases where people have had to sell their cars to pay off debts, losing the car but still owing money.

Furthermore, this loan cannot be repaid early for at least the first 42 months (or 60 months for borrowers), and early repayment will result in heavy penalties. Alternatively, if interest rates increase unexpectedly for any reason, customers will be significantly impacted.

In reality, some banks compete with each other, offering preferential interest rates initially to attract customers, then raising interest rates after the term expires to compensate, making it difficult for customers to repay. If this happens, customers will certainly be at a disadvantage.

The advice given to customers before they decide to take out a bank loan to buy a car is:

It is advisable to carefully read the terms and conditions of the contract with the bank, paying particular attention to the interest rate (including the period and the formula for calculating interest when it changes); especially the regulations regarding penalties for early or late payments, and the types of taxes and fees the bank imposes.

If there is any misunderstanding, customers should ask the bank staff for clarification in order to make changes or renegotiate.

It's advisable not to borrow a large percentage of the total value of the desired vehicle. Additionally, customers should proactively set aside a certain amount each month, plus a contingency fund in case interest rates rise, to make timely payments to the bank. This not only avoids late payment penalties but also contributes to a clean credit history for future loans.

According to Vietnamnet