Car Interest Rates

[Samoerai]

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

Really? I will never buy a car in Indonesia then. The car dealer makes money on selling you the car loan, because the car dealer gets a kick back from the financing company, right?

 

[pantaiema]

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"

Offering a loss leader product with time restricted, (e.g only during the promotional period for instance) is not too good to be true in many areas. It is a well known marketing strategy. Keep in mind they only do it during the promotional period, not indefinite, so the anticipated damage is controlled and estimated. Consider the cost/loss of offering this product as a substitute for marketing, advertising cost. It could also be a potential huge profit/penalty in a leter date once you miss the condition which they could still legally do it as you agree to the TCs.

A very good example for this is 0% interest on purchase Credit cards, 0% on Balance Transfer Credit cards within a limited time 1,2 3 years for instance. If it is offered by reputable banks it is a definite loss leader for them. But they are aiming that people might still have a lot of balance to clear at the end of promotional period, leaving them paying 20% interest pa (say) thereafter. This is where they will be making a huge profit. Also do not forget, a cross selling opportunity with their own customer by knowing their financial/spending behaviour. But for some people with better control of themselves, could use this as an arbitrage opportunity and save the money they get into the banks earning more interest, and later use the bank own money to clear the balance once the promotional period is about to end.

If it is a 0% car loan there are other parties getting involved in the chain, e.g car sellers, lenders/loan sharks, debt collector. Also they are a secured loan, so easier to get their back money even after misleading people on how the interest rate is calculated.

 

[centurion]

Really? I will never buy a car in Indonesia then.

It is counter-intuitive but it is like that. Car dealership gets a kickback from the finance company for every loan they facilitate, and the difference in price (cheaper financed vs more expensive cash) reflects that kickback.

 

[Samoerai]

It is counter-intuitive but it is like that. Car dealership gets a kickback from the finance company for every loan they facilitate, and the difference in price (cheaper financed vs more expensive cash) reflects that kickback.

I just edited my post ... just like you are saying. Wow, we are on the same page.

 

[Samoerai]

However, a kickback from the finance company would not be more than a couple procent.
Not enough to keep the dealer alive.
Must be other factors for the car dealer to make money, as Pantaiema is suggesting: "service, spare parts, etc". Meaning, he wants to sell you the car ... with a discount if necessary.

 

[pantaiema]

Just a reminder in order to prevent the car sellers, lenders to confuse people using various terminology; the relationship between effective interest and nominal interest is expressed by this equation

p is the number of times you pay interest in a year, so for one year monthly payment p=12, weekly p=52, for semi-annual payment p=2

Example:
The nominal rate payable monthly (e.g p=12) if the effective rate is 10% pa ?

So in nominal term it looks smaller e.g 9.57% but effectively you are paying interest of 10%.
The difference will be more significant if the payment is more frequent for instance weekly instead of monthly.

 

[snpark]

Really?

Yes really. That's why I wrote it.

 

[pantaiema]

Really? I will never buy a car in Indonesia then. The car dealer makes money on selling you the car loan, because the car dealer gets a kick back from the financing company, right?

The car price like for like, especially luxurious car in Europe or other developed world is definitely much cheaper compared to the car price in Indonesia. But what other alternative you have if it is going to be used in Indonesia ?? The taxes for luxurious car in Indonesia is 150%-200%. Let alone if the freight cost, the hassles associated to it are taken into consideration.

No wonder the smuggle of luxurious cars, big motor bikes is one of the most profitable illegal business in Indonesia. This is probably contributing to the IDR346T unaccountable transaction recently found.

 

[jstar]

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?

No, it depends much more on the demand and if the car is a new model (which is more or less the same here btw) and whether it’s import or local.

Forget discounts on a brand new model, but if it’s more than two years old theres quite some negotiating possible. Even without financing.

 

[centurion]

Just a reminder in order to prevent the car sellers, lenders to confuse people using various terminology; the relationship between effective interest and nominal interest is expressed by this equation
View attachment 3134
p is the number of times you pay interest in a year, so for one year monthly payment p=12, weekly p=52, for semi-annual payment p=2

Example:
The nominal rate payable monthly (e.g p=12) if the effective rate is 10% pa ?
View attachment 3133
So in nominal term it looks smaller e.g 9.57% but effectively you are paying interest of 10%.
The difference will be more significant if the payment is more frequent for instance weekly instead of monthly.

I did not mention nominal interest rates, but "nominal" interest rates. They are called "nominal" interest rates in Indonesia in the car leasing market, and these are the numbers that you see in ads or promo material.

The payments for the Indonesian lease are calculated as follows, here is an example.

Car is 100 million on 3 years/7 % loan. Interest is calculated by stated "nominal" interest as follows:

100 million x 3 years x 7%=21 million. This kind of calculation is misleading as it does not take the effect of the diminishing principal.

So, total payments are 100 million+21 million spread over 36 payments (121 million/36 million=3.361.000 per month. If you translate this to an equal-month payment loan (like a house mortgage-style), the interest is around 13%-you can check with mortgage calculators. If you translate to effective interest rare, it is even slightly higher.

So, with the above example, you can see that a "7% loan" is at least 13%.

The lease/dealership always has the effective interest rate in their Excel sheets for their own calculations, so they know how much are they ripping you off, and they never show it to the customers.

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[jstar]

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.

Just a reminder in order to prevent the car sellers, lenders to confuse people using various terminology; the relationship between effective interest and nominal interest is expressed by this equation
View attachment 3134
p is the number of times you pay interest in a year, so for one year monthly payment p=12, weekly p=52, for semi-annual payment p=2

Example:
The nominal rate payable monthly (e.g p=12) if the effective rate is 10% pa ?
View attachment 3133
So in nominal term it looks smaller e.g 9.57% but effectively you are paying interest of 10%.
The difference will be more significant if the payment is more frequent for instance weekly instead of monthly.

And again we get a truckload of theoretical BS unloaded. Some really think they invented sliced bread. And it has -with the same usual suspects- as result “panic and huge impact and nobody but us understands”!

Of course consumer protection is not so advanced (and extremely rigid) as in the EU for instance. And no, it’s not mandatory to use APR instead of a nominal rate. And yes, paying monthly has a different effect as paying yearly

But that is only relevant in comparisons and if all providers use different methods. And in reality (interesting word in this context), they don’t.

You can also ask yourself what the use is of forcing to tell the consumer the yearly interest rate is according to some calculation methods in fact 9,63% instead of the 8,5%? Indonesian people also are not stupid; they will want to know how much they have to pay per month for how long.

 

[jstar]

This kind of calculation is misleading as it does not take the effect of the diminishing principal.

Yes, you did not understand the word compounding? No MBA I guess.

 

[pantaiema]

I did not mention nominal interest rates, but "nominal" interest rates. They are called "nominal" interest rates in Indonesia in the car leasing market, and these are the numbers that you see in ads or promo material.

The payments for the Indonesian lease are calculated as follows, here is an example.

Car is 100 million on 3 years/7 % loan. Interest is calculated by stated "nominal" interest as follows:

100 million x 3 years x 7%=21 million. This kind of calculation is misleading as it does not take the effect of the diminishing principal.

So, total payments are 100 million+21 million spread over 36 payments (121 million/36 million=3.361.000 per month. If you translate this to an equal-month payment loan (like a house mortgage-style), the interest is around 13%-you can check with mortgage calculators. If you translate to effective interest rare, it is even slightly higher.

So, with the above example, you can see that a "7% loan" is at least 13%.

The lease/dealership always has the effective interest rate in their Excel sheets for their own calculations, so they know how much are they ripping you off, and they never show it to the customers.

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otoklix.com

So it is actually it is a much simple maths and more significant difference. They already account all of the interest in advance, added to principals and divided by the number of payment. It does not take into account of the reducing balance every time you make the payment !!! Interesting ...

 

[jstar]

So it is actually it is a much simple maths. They already account all of the interest in advance, without taking into consideration of the reducing balance once you make the payment, added to principals and divided by the number of payment !!! Interesting ...

Yes compounded…

 

[centurion]

Yes, you did not understand the word compounding? No MBA I guess.

This has no connection with compounding, I see it is hard for you to understand. I will try simpler words.

The loan depreciation over time is usually done either by equal principal payment (with added interest over the remaining of the loan) or equal payment (like a house mortgage loan, the principal is smallest at the beginning and greatest at the end of the loan).

Car financing company "calculates" the interest by multiplying the interest over the full loan as there is no repayment (similar to a bullet loan-loan where the principal is paid once in full at the end). This is just mathematical manipulation, resulting in any interest rate (mortgage style or effective) being significantly understated, as in reality the car loan is mortgage style.

 

[Samoerai]

I did not mention nominal interest rates, but "nominal" interest rates. They are called "nominal" interest rates in Indonesia in the car leasing market, and these are the numbers that you see in ads or promo material.

The payments for the Indonesian lease are calculated as follows, here is an example.

Car is 100 million on 3 years/7 % loan. Interest is calculated by stated "nominal" interest as follows:

100 million x 3 years x 7%=21 million. This kind of calculation is misleading as it does not take the effect of the diminishing principal.

So, total payments are 100 million+21 million spread over 36 payments (121 million/36 million=3.361.000 per month. If you translate this to an equal-month payment loan (like a house mortgage-style), the interest is around 13%-you can check with mortgage calculators. If you translate to effective interest rare, it is even slightly higher.

So, with the above example, you can see that a "7% loan" is at least 13%.

The lease/dealership always has the effective interest rate in their Excel sheets for their own calculations, so they know how much are they ripping you off, and they never show it to the customers.

Cara Hitung Kredit Mobil Sesuai Kebutuhan dan Simulasinya

Cara hitung kredit mobil yang sesuai dengan kebutuhan dimulai dengan menghitung DP, besaran pokok kredit, suku bunga, biaya asuransi…

otoklix.com

Unbelievable ..
Who comes up with these kind of schemes?

 

[centurion]

Unbelievable ..
Who comes up with these kind of schemes?

Not to mention that early repayment penalty is 5-8% usually.

 

[pantaiema]

Yes compounded…

If compounding interest of the principle loan is accounted in advance, added to the principle, and divided by the number of payments, the difference will be manmouth.

 

[Samoerai]

Not to mention that early repayment penalty is 5-8% usually.

The small prints, yes.

 

[Hawk256]

Maybe now Islam saying that all riba is haram makes at least some sense. Much easier to figure out "profit" at the beginning of a payment method. I buy for 10 for sell to you for 12 and you can pay me within the year. Doesn't get much simpler.