It seems this is the common way the car loan / leasing is calculated in Indonesia. So it is different to people common understanding of APR (Nominal interest Rate) and AER (Effective interest Rate). Also as mentioned previously, it does not take into account of the reducing balance every time the monthly payment is made.
In this example: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
Car Price Rp700m, Interest of 6% pa DP 20%, 3years (automatically converted to 36 months).
All of the insurance, admin fees and region is deliberately set to Rp0 (0%) so it could be easily compared. But in reality this will still need to be added to the loan.
DP 20% of Rp700m=Rp140m,
So Credit Loan= Rp700m-Rp140m=Rp560m
Interest rate per year is 6%, so 6% x Rp560m = Rp33,6m per year
So for three years multiplied by three =3xRp33,6m= Rp100,8m
Calculated Monthly Re-Payment
(Rp560m + Rp100,8m) / (3x12) = Rp18,35m per month
It is the same result with credit simulation calculator available for public in Indonesia
View attachment 3139Simulasi Kredit Mobil / Pinjaman Kendaraan
Simulasikan kredit mobil anda di sini. Anda dapat mencari harga yang pas buat kantong anda dengan simulasi pinjaman mobil ini.www.simulasikredit.com
View attachment 3138
Whereas I am not. Thank you for all the examples from everyone, it finally clicked through that the interest is always applied to the whole loan, without the principal slowly dwindling like I am used to!I am used to nominal vs. effective interest rates
BCA is a big bank. They can even take money from Bank Indonesia at a repo rate of 5.75% (now, and before was much less) and still make a margin. They can also utilize the money from their customers' deposits where they pay 4% per year maximum. Be aware that almost nobody takes a 1 -a year car loan, but usually is 4-6 years, where the interest rate goes much up or floating. Also, the loan includes the % for processing the loan (1%).Yes Pantaiema. I read your and centurion's responses. I appreciate them. I used the same methodology for my calculations. The 3.625% average nominal interest currently advertised by BCA for this month becomes a 6.801% effective interest (6.792% using the calculator you posted). Feel free to check my math. It still seems too cheap of an interest rate compared to government rate. I can't imagine any risk to government bonds would not be equal or greater for new auto loans. Do you have any insight into this or any of the other questions?
And for repay early also a "penalty" lolBCA is a big bank. They can even take money from Bank Indonesia at a repo rate of 5.75% (now, and before was much less) and still make a margin. They can also utilize the money from their customers' deposits where they pay 4% per year maximum. Be aware that almost nobody takes a 1 -a year car loan, but usually is 4-6 years, where the interest rate goes much up or floating. Also, the loan includes the % for processing the loan (1%).
As far as I know a bank (let's say A) can borrow money from another bank (B), not only from the central bank . So, this bank A, making a good deal with bank B, could lend money to consumers with a lower interest rate than the market rate.How can that be? The current Indonesian government 10 yr bond has a yield of 6.467%.
As I understand Centurion's explanation, this calculation is wrong.So on a 100 juta loan that would be 3 juta yr 1, 3.5 juta yr 2, 3.75 juta year 3, and 4.25 juta year 4 all front ended into the loan for a total of 114.5 juta /48 or 2.385416 juta per bulan. This is still only an effective 6.801%.
BCA is a big bank. They can even take money from Bank Indonesia at a repo rate of 5.75% (now, and before was much less) and still make a margin. They can also utilize the money from their customers' deposits where they pay 4% per year maximum. Be aware that almost nobody takes a 1 -a year car loan, but usually is 4-6 years, where the interest rate goes much up or floating. Also, the loan includes the % for processing the loan (1%).
As I understand Centurion's explanation, this calculation is wrong.
Early Repayment Charge (ERC) is not unfair. Keep in mind if you could pay early they will forefeit any potentail profit that they could get.
According to my calculation based on the "The Indonesian way of calculating the monthly repayment" explained by Centurion and inputting the BCA advertisement regarding a 4 year car loan (100 juta) with 4,25% interest, the effective Interest rate would be 8,2%.The time-value of money calculation doesn't matter because the bank front loads all interest into the loan. I believe the calculation is correct.
Lack of sleep ..Obviously a typo for 1 year 500jt
Based on my calculation:According to my calculation based on the "The Indonesian way of calculating the monthly repayment" explained by Centurion and inputting the BCA advertisement regarding a 4 year car loan (100 juta) with 4,25% interest, the effective Interest rate would be 8,2%.
Point is, the interest rates for car loans here in Indonesia, has to be taken with a grain of salt.
I have not thought thoroughly, but I think why you ended up here with a smaller figure e.g 6.801%, is you do not take into account the fact that your balance is reducing every single month, not every year. With 48 months to account for the difference could be meaningful.I was aware of loss leaders and financing from car companies to increase sales. My question was looking for private banks. The answers about car company financing now has me a little curious to the legality of that from foreign car companies. The Indonesian financial system is very unfriendly to foreign companies participating and is heavily regulated for them.
Thank you for the explanation. I am used to nominal vs. effective interest rates, but what I was used to just broke down on compounding monthly vs annually. I never saw upfronting 100% of the interest into the loan and paying monthly on that. I was seeing quotes as low as 3% year 1 from private banks, but then 4.25% year 4.
BCA
Bunga Mobil Baru - BCA Finance
bcafinance.co.id
So on a 100 juta loan that would be 3 juta yr 1, 3.5 juta yr 2, 3.75 juta year 3, and 4.25 juta year 4 all front ended into the loan for a total of 114.5 juta /48 or 2.385416 juta per bulan. This is still only an effective 6.801%. How can that be? The current Indonesian government 10 yr bond has a yield of 6.467%. There should be more of a default premium built than just .33% into a car loan.
The used car rates seem more appropriate:
Bunga Mobil Bekas - BCA Finance
bcafinance.co.id
9% nominal becomes an effective rate of 16% which seems more likely with default risk, costs, and inflation risk for Indonesia.
Does anyone know why the insurance rate is so high for Sumatra?
Does the insurance premium go to the bank as a self-insurance portfolio rate or is it a separate third party? Government or private?
At 4.2% upfront on a 100 juta loan in Sumatra, that would put the effective rate to 8.583% for the bank and more reasonable.
This might vary by country. In the US honeowners who move houses will typically pay off the original mortgage with the sale proceeds of their old house, so ... early payment penalties are regulated. Apparently it's more common during the first five years (US mortgages are typically 15 or 30 years with the rate locked in - even the floating rate - this is not common elsewhere; the government really pushes people towards home ownership)If you take secure loan in developed world such as mortgage you could only make additional payment within a certain percentage of the remaining balance, typical no larger than 10%
I never say you can not pay off your mortgage, I said the default is you can not pay off your mortgage without triggering the Early repayment charge (ERC). Certainly this ERC will depend on the TCs.This might vary by country. In the US honeowners who move houses will typically pay off the original mortgage with the sale proceeds of their old house, so ... early payment penalties are regulated.
Sure. I am just saying that in at least the US the ERC is in practice very constrained or don't exist.I never say you can not pay off your mortgage, I said the default is you can not pay off your mortgage without triggering the Early repayment charge (ERC). Certainly this ERC will depend on the TCs.
The 10% maximum is the typical figure (depending on the TCs) of an overpayment allowance, each year without triggering the ERC fees.