Used Car Financing Issues In Malaysia, Why Is It So Difficult To Get A Loan?

In the past 15 years I have bought and sold 5 different cars for my wife. My in-laws and friends are of the opinion that I am wasting money doing this, especially when I spend money doing up these used cars right after purchase and the a few years down the road I sell the car and start the process all over again. With this article I hope to quash all the rumors that I am losing too much money and being just plain silly. Let me start from the beginning.

Most of you reading this would have been through what I am about to highlight. Problems in getting financing for a used car! If you happen to buy your used car from a used car dealer or from a new car dealer who is selling a traded-in car then this problem does not really exists. However, if you like me prefer to walk into a finance company to secure your own car loan then the situation is all very different.

You see, walking into a finance company to secure your car loan is even more difficult than getting a housing loan for 8 or maybe even 9 times more credit. In fact, if you are buying a relatively cheap car and need say, RM12,000 loan, it is actually easier to get a ‘free for life’ credit card with a credit limit of RM15,000! With the credit card, there is no collateral, just the same documentation and credit check that is required for a car loan. So why is it easier to get a credit card and not a walk in car loan where the car can be repossessed if payment is not made, whereas with non-payment of a credit card bill, the bank has no collateral and so they need to seek the courts assistance which takes longer and can be a more expensive process.

Lets start with my personal experience. I have been financing my cars with the same finance company branch for the past 17 years. My first loan took a lot of convincing and visits. They had an officer at a desk in-charge of walk in car loans at a time when they were aggressive seeking a bigger slice of the used car loan market. The car I wanted to purchase was a rather unusual imported car of some 8 years and this made it difficult for them to valuate the car.  After a 2 weeks of running in and out trying to convince them to secure me a loan of just 70% they finally agreed only when I managed to get a moment with the branch manager and further explain my case. ‘She’ signed off the loan saying that she was extending some risk after my convincing financial background.

Seeing as my housing loan and credit cards were all up to date in their payments she agreed on a yearly interest of 5.00%. This was due to the age and unusual model of car. After 8 months into the loan I went in for a 2^nd car loan and again the process was tedious but approval came in a just a few days. This time it was a 6-year-old car and the interest was 4.75% since I had maintained a clean payment record. Now when it came time to sell my 6-year old car some 26 months later for an upgrade, my car buyer had a big problem in securing a loan. I introduced him to my friendly bank manager. This time the interest rate was 5.25% with a margin of just 70%. Pushing for 90% was not possible as the car was older and risk higher. My buyer declined the purchase.

I had to re-advertise and this time around the new buyer managed to secure a loan with 95% margin and 5.00% interest. How did he do it? Well he had a friendly used car dealer who could arrange the loan for a small fee of RM1K. For the buyer the fee was well worth it, as he only had to run twice, once to the used car dealer and the second time to the finance company to sign the documents and get the car inspected and his loan margin was higher with less interest every year.  Now over the next few years I kept getting my car loans from the same branch as I had become good friends with the manager, but all the buyers of my old cars had to get assistance from used car dealers even with introduction from me to the friendly branch manager, the policy of the bank was only to deal with existing customers. Well, you first need an introduction to get the ball going, right?

Today the situation is getting more complicated and only the two biggest car financiers; Maybank and Am-Finance will allow some walk-in business depending on your credentials. CIMB, Bank Islam, Affin, RHB and Bank Mualamat will also entertain walk in customers but only for very common cars that are locally made of have a high volume of numbers. Public and Hong Leong bank will rarely entertain walk-in customers and they seem to be on a hard drive to bring up their car loan numbers using used car dealers.

By only buying used cars over the last 32 motoring years, what have I gained from all this? Well the answer is ‘not much’ in terms of interest rates and time consumed when re-selling. However I have not experienced the 30-50% depreciation in value, which 1st owners of new cars experience in their first 4-5 years of ownership. So why is it that many motorists still prefer to buy new?