Be it a new or second hand car for sale, there’s no denying that buying a car is a fun experience. Visiting the dealership, test driving the cars, enjoying the free coffee and light bites, basking in the smell of a newly-polished car… Okay, we’re getting sidetracked here.

However, what’s not as enjoyable is navigating the world of loans, financing, and money, money, money. When it comes to buying a car and pursuing a hire purchase loan, there are two loan interest rates to be aware of: a fixed interest rate and a variable interest rate.

Although loans aren’t as exciting as test-driving a car, understanding the basics of a fixed-rate and variable-rate loan will be helpful when you decide to buy a car. Plus, you may be able to advise a friend or two in need!

What Is A Fixed-Rate Loan?

A fixed-rate loan has an interest rate fixed permanently throughout the loan period, which means you will pay the same amount every month.

If a bank approves your loan with a 3% interest rate and the monthly car repayment is RM700, that will be the same every month, no more and no less.

What if you have extra cash and want to repay your loan faster? For fixed-rate loans, any excess amount will be considered an advanced payment for the next month and won’t reduce your interest – you’ll just be paying off the interest earlier. 

How To Calculate Fixed Rate Loans For Cars

Using a car worth RM80,000, with a loan period of 9 years and a 20% downpayment as an example:

Price of car: RM80,000

Car loan period: 9 years

20% downpayment: RM15,200

80% loan amount: RM80,000 – RM15,200 = RM64,800

Loan interest rate: 3%

Total interest: 3% × RM64,800 × 9 years = RM17,496

To calculate the monthly interest, simply divide the total interest by the loan period in months.

Monthly interest: RM17,496 ÷ (9 × 12 months) = RM162

Now, to calculate the monthly instalment, combine the total loan amount with the total interest and divide it by the loan period in months.

Total monthly instalment: (RM64,800 + RM17,496) ÷ (9 × 12 months) = RM762

What Is A Variable Rate Loan?

Unlike a fixed-rate loan, a variable-rate loan has a changing variable – the monthly interest rate, which affects the monthly instalment amount. 

The interest rate is determined by the bank’s Base Lending Rate (BLR), which fluctuates based on the Overnight Policy Rate (OPR) set by Bank Negara Malaysia (BNM). In other words, the OPR plays a big part in influencing the interest rate of a variable-rate loan.

If the OPR increases, so does the monthly interest and the amount to pay, and vice versa if it decreases.  

Should you decide to pay extra monthly, doing so will help reduce your principal amount, which reduces your instalment amount as well. Just check with your bank if it’s allowed to avoid any penalties.   

How To Calculate Variable Rate Loans For Cars

Based on the example of a car with a loan amount of RM100,000 and with a 60-month tenure:

Price of car: RM125,000

Car loan period: 5 years

20% downpayment: RM25,000

80% loan amount: RM125,000 – RM25,000 = RM100,000

Amount	Current Amount	BLR Increases By 1%	BLR Increase By 2%
Monthly Instalment	RM1,888	RM1,934	RM1,981
Total Interest	RM13,227	RM15,997	RM18,807
Total Repayment	RM113,227	RM115,997	RM118,807
Annual Percentage	5%	6%	7%

Comparing Fixed-Rate VS Variable-Rate Car Loans

Factors	Fixed Rate Loan	Variable Rate Loan
Monthly instalment	Fixed, doesn’t change.	Not fixed, affected by the BLR.
Interest rates	Fixed, doesn’t change.	Not fixed, affected by the BLR.
Extra monthly repayments	Cannot pay extra monthly to lower the total interest, or pay less if there are financial difficulties.	Able to pay extra monthly to lower the total interest.
Who is it for?	Buyers who value consistency and repayment stability.	Buyers who value flexible repayments and willing to take risks (unpredictable OPR).

Don’t Leave Your Loans Alone

Before you apply for a car loan, take your time to weigh the pros and cons of a fixed-rate loan or a variable-rate loan to see which works best for you, as the loan period can last up to nine years. 

Nothing is certain when dealing with money, so choose a vehicle that is within your budget and avoid overspending just to flex your shiny, dream ride. It doesn’t have to be a rich man’s world to afford a car, especially when there are so many affordable options, like a used car with amazing value, great mileage, and more hidden gems.