- Should we choose 0% down payment option? The 0% down payment promotion is an attractive offer because it allows us to own a vehicle without making a huge upfront payment. However, the feature often comes with higher instalment amount, due to higher interest rate and the overall higher interest charge calculated on the full car price. Also, the promotion usually has the maximum of 48-month instalment condition. For example, for a car priced at 600,000 baht, if the 0% down payment option with 48-month instalment plan is chosen, the instalment amount will be 14,995 baht* per month. On the other hand, if 25% down payment is paid, the interest rate will be lower, driving the instalment amount down to 10,233 baht* per month and significantly helping on the cost saving.
- Does the automotive hire-purchase interest use a "flat" or "effective" rate? Most automotive financing uses a "flat" interest rate (the interest charge is based on a flat percentage of the amount borrowed and the loan period). However, the interests are paid back on an "effective" basis (the interest paid will be lower over time), meaning more interest is paid at the beginning of the car loan while most of the instalment amount near the end of the loan will go towards principal repayment. It is, therefore, normal that the amount of money owed will still be high during the first part of the loan. Plus, borrowers can always check the reference table in the contract which will provide a breakdown of principal and interest repayment in each month.
- Is a guarantor necessary? One question to ask when applying for an automotive financing is whether you have the ability to pay back because financial institution mainly look at the individual borrower profile to identify the loan conditions. For both full-time employees and freelancers, if you can provide a proof of stable income, which can be from a variety of sources, a guarantor is not necessary. However, if you already have some financial burden, a guarantor is another factor that needs to be considered when using automotive financing.
- Which type of insurance is required? Insurance is an essential matter, especially for newbies. For new cars, the buyer is usually entitled to receive the compulsory motor insurance (Por Ror Bor) and the voluntary motor insurance or type 1 car insurance for the period of one year, as an add-on package. In the second year, the car owner will have to pay for both insurance themselves. The compulsory Por Ror Bor has a single rate of 645.21 baht across vehicle models and brands, while voluntary insurance can be customized per the owner's preference. For those looking for extra peace of mind, payment protection insurance (PPI) is a great option, in which the insurer will be responsible for the remaining loan repayment in case of the borrower's death or disability. It must be noted that PPI can only be applied since the beginning of hire-purchase contract.
- What to do if you want to pay off your loan early? For those having paid the loan back for more than 12 months, there is an option of early settlement, or paying off the loan earlier than the contract end date. The pre-closure of the loan also allows borrowers to get at least 50% rebate on the remaining hire-purchase interest charge on the effective rate basis. However, the borrowers are advised to recheck the remaining principal amount as of the intended pre-closure date to make sure that they have the ability to pay back the amount owed, along with related expenses such as value-added tax and fees.
Owning a vehicle comes with a lot of other recurring expenses, from fuel, maintenance, annual tax, accessory and insurance. Make sure you pick the right one, study the essential information and choose the most suitable auto financing condition. If a hire-purchase newbie is prepared, a financial institution is always willing to offer automotive financing responsibly.
Source: FleishmanHillard Thailand