There's nothing wrong with a Perodua Axia. If the monthly instalments are too high, the correct course of action is to buy a cheaper car, not stretching your loan's tenure. ConsumerвЂ™s insistence on having bigger rims also mean that tyre replacements now cost more too. ThereвЂ™s also insurance cost and todayвЂ™s cars are a lot more complicated so you canвЂ™t expect maintenance cost to be just as low. Maintaining a car is more than just about paying the monthly instalments. This Rule of 78 leaves consumers holding the wrong end of the stick but itвЂ™s important to keep in mind that this is all perfectly legal and approved by Bank Negara so you canвЂ™t blame your bank for it. However the Rule of 78 meant that although I had only served slightly more than 30 percent of the loanвЂ™s 9-year tenure, I had to pay over 60 percent of the interest charges when I wanted to make an early settlement. Instead of paying over RM 26,000 in interest, I paid about RM 16,000, saving myself about RM 10,000 in interest charges.

I paid off my 9-year loan of RM 113,000 in just 3.5 years, after receiving the payout from one of my other investments (was part of the original plan, but had difficulty syncing the time frames). What the bank didnвЂ™t tellВ me however, was Rule of 78 (I was also a lot younger). However, I had zero intention of paying the car for nine years and was aiming to make an early settlement, which the bank said was possible and that there wonвЂ™t be any penalty. ThatвЂ™s just stupid.Д«ut many years ago I once did exactly just that вЂ“ taking a 9-year loan for my car - due to a rather unique and convoluted set of reasons that are beyond this topic. When you take a 9-year loan, your carвЂ™s value is depreciating faster than your ability to pay off the loan, which also means that you canвЂ™t sell off your car without pumping more money to pay off the loanвЂ™s balance. If you have to take a 9-year loan for your car, it means you canвЂ™t afford the car.ДonвЂ™t take a 9-year loan and be one of those people who rant on Facebook about high maintenance cost, and then try to save money by buying cheap parts and lubricants of unverified origin and use cheap dodgy tyres. The Rule of 78 allows banks to load 80 percent of the total interest payable onto the first half ofВ the loanвЂ™s tenure, thus assuring them a fat profit when a borrower decides to make an early settlement.Д«uying a car with a 9-car loan is a bad idea. Rule of 78 allows banks to load 80 percent of the interest charges onto the first half of the loan's tenure period. If a borrower decides to make an early settlement, he/she will see some savings in interest charges, but not as much as expected. Without going into too much financial details, the Rule of 78 allows banks to load a disproportionate amount of interest charges in the earlier months of the loan tenure period.

Recently, the topic of Rule of 78 has been gaining traction after one Said Din shared on Astro Awani about his bad experience in making an early settlement for his car loan with Maybank. If you are buying a car, and if you need financing, limit your loanвЂ™s tenure period to no more than 5 years. With a 5-year loan at the same interest rate, interest charges is reduced to RM 12,500 вЂ“ which is still very high. When you take a 9-year loan for RM 100,000, at the current 2.5 percent interest rate - the typical during this bearish RMCO period - youвЂ™re paying RM 22,500 in interest alone! ThatвЂ™s enough to buy a youngtimer Bavarian classic as a weekend fun car, with balance left for maintenance work. In Malaysia, things are even worse not just because 9-year long car loans are the norm but also because our hire purchase repayments are calculated based on the principal sum.

Odd coming from the country that allowed sub-prime mortgages to implode half of the worldвЂ™s economy. To many financial experts in the US, this is a red flag. The topic of increasingly long loan tenures for auto loans is also becoming a concern in the US but how long is too long for them?Д§-year tenure auto loans now make up 20 percent of total US car loans вЂ“ more than twice as many compared to 10 years ago. вЂњThe interest is calculated based on the principal sum and not the remaining balance, thatвЂ™s crazy!вЂќ That was the conversation I had a car company executive who has just been transferred from Europe to Malaysia.

Rule of 78 loan calc