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A recent report by The Edge Malaysia has indicated that loan interest rates for both national and non-national cars have increased by about 40 basis points. Bankers told the publication that the increase was an “order” by Bank Negara Malaysia (BNM), partly due to concerns regarding the rise of non-performing loans for cars. BNM has however denied any such directive.

“Financial institutions set their own lending rates determined by various factors including a financial institution’s assessment of a borrower credit standing, market funding rates and competitive considerations,” said the central bank in a statement.

Meanwhile, banking sources told The Star that the rise and fall of interest rates might impact loan growth in the short term, but growth is expected to return to normal in the medium- to long-term.

A call to the Sime Darby Auto Connexion dealership in PJ yesterday revealed that loan interest rates for its new Ford models have indeed gone up to around 2.8% from a rate of 2.4-2.5% in January. A salesperson, who declined to be named, said that eventually, the rate is anticipated to reach 3.5%.

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He added that the loan rates for used cars would also increase in corresponding fashion, saying that the rates for used car loans was roughly 1.5% higher than new car loans.

A Honda dealership we contacted also said that loan interest rates had increased, quoting a present rate at about 2.7%, up from about 2.4% in December 2013.

According to recond car dealer CA AutoWorld, rates have increased by 0.3-0.5% beginning yesterday. It declined to say which banks have upped their rates. The rates would depend on the size of the loans – details of which have not been divulged.

Another dealer, KengHim Automobile said that loan interest rates for second-hand vehicles had not yet gone up, remaining in the region of 3.3-4.5%, depending on vehicle make and age, but expected it to be increased very soon. The company also said that rates would depend on the loan amount.

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However, this present hike shouldn’t impact the average car buyer too much, if it is indeed a 40-basis point jump. For example, if a RM50k loan over a period of seven years at a rate of 2.3% incurs a RM691 monthly payment, the same at a rate of 2.7% is RM708. That’s RM17 more per month.

Last year, BNM squashed rumours of a memo directed at banks to reduce the maximum repayment period for new car loans to seven years, and raise the minimum downpayment value from 10% to 20%.

According to the central bank’s latest statistics, impaired car loans stood at RM2.33 billion in February – an 8.3% jump over the month before and 21% more than the same period last year. At 83%, Malaysia’s household debt-to-GDP ratio is the highest in Asia amongst developing countries.

While it remains to be seen how much of an impact this move will have in terms of sales in the near-term, car companies can of course circumvent the interest rate increase through subsidisation via sales promotions/campaigns which offer a low interest rate, or will we see a capping of these activities too?