Car Interest Rates

[jukung11]

Does anyone know why these are so cheap in Indonesia? The interest rates are lower than the Bank Indonesia benchmark interest rates. Banks could buy 10 year government bonds and get more interest than a car loan. Mortgage rates are far higher. A car is a depreciating asset with a higher risk of total loss than a home. I have asked a few Indonesians I know and they just shrug. It has always been that way.

 

[flavus]

Do these come from financial institutions affiliated with the car manufacturers, or from unaffiliated ones? If affiliated... I wonder if it's basically considered a loss-leader to boost sales.

 

[pantaiema]

Does anyone know why these are so cheap in Indonesia? The interest rates are lower than the Bank Indonesia benchmark interest rates. Banks could buy 10 year government bonds and get more interest than a car loan. Mortgage rates are far higher. A car is a depreciating asset with a higher risk of total loss than a home. I have asked a few Indonesians I know and they just shrug. It has always been that way.

Look at the whole picture, not just the interest rate.
In other countries you could even get 0% of car loan, let alone it is just lower than Central bank base interest rate.

https://www.moneysupermarket.com/loans/car-finance/0-car-finance/

Interest-free finance deals, What is 0% car finance?

It is a well known game with various parties taking parts. Typically you will need to depend on particular dealers, distributors, lenders, the banks to get those headlines interest. It is often the price of the cars are not competitive in the market. Let alone the cheapest one. Also do not forget it is a secure loan. Although it is a depreciating asset they still have salvage value where the loan sharks and debt collectors, could team up together to seize the car from you. Quite a distance possibility but could happen you pay your deposit but you do not even get your car.

It is a similar game with sending or receiving money in foreign currencies, that have been discussed here in many threads. People do not just look at the exchange rate headlines.

But it is not uncommon to offer a car loan with interest much lower than Central bank base interest rate, in a promotional event or as a marketing strategy. For instance they restrict the number of people who could get it. The aim is to get you through the doors and offer a different deal. This marketing strategy is well known as "bait and switch".

But if you could get a truly bottom low or zero interest car loan and you could choose car dealers sellers by your owns, many people could get it, that is a real deal as it could work as an arbitrage opportunity.

 

[jstar]

In Indonesia approx. half of all car sales is financed. Don’t forget that the car dealerships have their own financial solutions (private lease, loans, …). Often in collaboration with a larger credit provider which -as financing company- is part of the group. Good example is Astra.

 

[snpark]

Yep last car I had the finance BCA 3.75% and I was getting more from HSBC on my savings. So no brainer. Put down 30% dp the rest 36 months and get the missus down for good credit history with the bank etc.

 

[flavus]

In Indonesia approx. half of all car sales is financed

And that's a good sign too right? As the economy matures this could go even higher - right now Indonesia's percentage is similar to that for used cars in USA (new cars are over 80% financed)

Share of used and new cars financed in the U.S. 2022 | Statista

Most of the new vehicles in the United States in 2022 were acquired using some kind of financing, while that applied to less than half of used cars.

www.statista.com

 

[Samoerai]

And that's a good sign too right?

Why would that be a good sign? For who is this good?

 

[flavus]

Why would that be a good? For who is this good?

As a reflection that lenders feel they can get their money back, that's a good thing.

For customers, since the rates are often lower than market, that's good - provided you are disciplined enough not to "besar pasak daripada tiang". Though conversely I guess you can say it's bad for those who want to buy in cash, but those can always save up, then let the money accrue interest while they finance the vehicle.

I suppose what is missing in Indonesia is a better credit score system, though. Not sure which country does it properly, I think I prefer the European model where it's linked to your tax history than the US model where it is linked to debt repayment

 

[centurion]

Does anyone know why these are so cheap in Indonesia? The interest rates are lower than the Bank Indonesia benchmark interest rates. Banks could buy 10 year government bonds and get more interest than a car loan. Mortgage rates are far higher. A car is a depreciating asset with a higher risk of total loss than a home. I have asked a few Indonesians I know and they just shrug. It has always been that way.

The car lease interest rates are not cheap. They are falsely/misledingly represented, and if you want the real interest rate, ask for the "effective interest rate". Then 3% goes to 7%, 11% goes to 19%, and so on.

 

[flavus]

The car lease interest rates are not cheap. They are falsely/misledingly represented, and if you want the real interest rate, ask for the "effective interest rate"

ouch. Did they just show the monthly interest and multiply it by 12 instead of compounding it?

 

[centurion]

ouch. Did they just show the monthly interest and multiply it by 12 instead of compounding it?

No. Indonesian car loan rate is done by a so-called "nominal" rate.

I.e, you have a 7% loan on 100 million cars for 3 years. They will calculate 7% on 100 million and multiply by 3, getting 21 million of interest total. Then, that amount of interest is put back into a consumer-style monthly payable loan (equal installment, most of the interest coming at the nearest payments), and with this squeeze even more interest.

This style of interest representation is forbidden in many Western countries and the Effective Interest Rate should be declared together with this kind of representation. You can ask your dealer for the Excel that will give the Effective Interest Rate as well (they always have it, but do not show it to the customers).

 

[jstar]

The Effective Interst Rate will only deviate if you’re talking about compounding and the periods on which you do that.

But that’s not relevant in small amounts and short periods (as car loans typically are). We are not talking about a multi billion rupiah loan for a house for two or three decades where the interest is recalculated every month or quarter or year…. and thus depends on the outstanding amount.

Unlike the nominal interest rate, which only includes the pure credit costs, handling costs and registration fees also apply when taking out a loan. So these additional costs are reflected in the effective interest rate and can make somewhat of a difference.

 

[Samoerai]

But if you could get a truly bottom low or zero interest car loan and you could choose car dealers sellers by your owns, many people could get it, that is a real deal as it could work as an arbitrage opportunity.

If it is too good to be true ....

Also in the case of zero interest car loan, one would always pay more (for the car) compared to a bank loan. Why?

Because if you take the zero interest car loan to finance your new car, you can get a discount of max 5% (or even no discount). "Tawar-tawar tidak bisa, pak"

But if you don't take the zero interest car loan, you can get a realistic discount of 10% or 11%. "Tawar-tawar bisa, pak"

 

[jstar]

Also in the case of zero interest car loan, one would always pay more (for the car) compared to a bank loan.

Yep. It’s a bit like when you want to sell your existing car to the dealership. If they accept and do that, they will give less discount on the new car.

There‘s no such thing as a free lunch.

 

[Samoerai]

Yep. It’s a bit like when you want to sell your existing car to the dealership. If they accept and do that, they will give less discount on the new car.

There‘s no such thing as a free lunch.

Yes, a worse case scenario is .. if you take the zero interest car loan, one would get less or no discount on the new car and a lower price (than a fair price) for the old car.

No free lunch and dinner

 

[Samoerai]

Start nego by saying "I pay cash, right now .. but I want a discount of 15% on the car. Mau atau tidak mau?"

 

[snpark]

Start nego by saying "I pay cash, right now .. but I want a discount of 15% on the car. Mau atau tidak mau?"

They just say cannot. Even 1%
But maybe 1 free service. Or some mats

But finance? They will roll in insurance. Nice number. Delivery. And a red bow on the bonnet

 

[Samoerai]

They just say cannot. Even 1%
But maybe 1 free service. Or some mats

But finance? They will roll in insurance. Nice number. Delivery. And a red bow on the bonnet

Really?

 

[centurion]

The Effective Interst Rate will only deviate if you’re talking about compounding and the periods on which you do that.

But that’s not relevant in small amounts and short periods (as car loans typically are). We are not talking about a multi billion rupiah loan for a house for two or three decades where the interest is recalculated every month or quarter or year…. and thus depends on the outstanding amount.

Unlike the nominal interest rate, which only includes the pure credit costs, handling costs and registration fees also apply when taking out a loan. So these additional costs are reflected in the effective interest rate and can make somewhat of a difference.

If you are not in the financial profession it is normal to not understand what am I talking about. The same is for common people in Indonesia.

 

[centurion]

Start nego by saying "I pay cash, right now .. but I want a discount of 15% on the car. Mau atau tidak mau?"

Hardly possible. A car for cash in Indonesia is more expensive than on a loan. You can ask any car dealership.