How Are Interest Rates Figured Here?

[keeshou]

I went to buy a second hand car yesterday and when the owner was doing the figuring I noticed that he had compounded the 5.5% interest every year on the principle.

So, for example on the (remaining after deposit) figure of 400,000 baht 5.5% interest should have been 22,000, but he was giving me a figure of 66.000 Baht for a three year loan. When I mentioned that this was actually a 16.5% interest rate he was a bit confused.

Is this the typical way finance companies give interest rates here? If so, does anyone know of companies that give flat interest rates?

Also what is the VAT, being applied to, the interest or is it to the principle?

[gregb]

...

So, for example on the (remaining after deposit) figure of 400,000 baht 5.5% interest should have been 22,000, but he was giving me a figure of 66.000 Baht for a three year loan. When I mentioned that this was actually a 16.5% interest rate he was a bit confused.

...

The dealer is correct, and there is no one in Thailand who will calculate it any other way. When they speak of interest on a car loan, it is simple interest per annum. Meaning, if they say 5.5% for a 3 year loan, then you pay 5.5% for the full value of the loan every year. So, in your case, 400k at 5.5% per year for 3 years is 66k baht. So you have to pay 466k baht over 36 months, or 13k per month.

Coming from the states where car loans are advertised as APR, I found this system disingenuous and offensive until I just grew to accept it and started carrying my laptop around to calculate the "real" interest rate I was used to.

Every country does this differently. This is just the Thai way for cars. Home loans, on the other hand, are actually calculated as APR, which in my opinion is a much more honest way of doing it.

If you want to pay 22k in interest for a 3 year car loan at 400k, you need to find someone who will offer you a rate of 1.83% per year. Be careful, sometimes car dealers quote the interest rate "per month", not per year. So it gets even worse. BTW, 5.5% per annum is a pretty good rate for a second hand vehicle in this country in my experience.

Fees are only applied to the selling price, not the interest.

[torrenova]

I bangedc my head against this when buying my new truck on finance. They are not educated enough to understand the real APR and calculate things on the back of a cigarette packet. The real APR is far higher than the % they quote. For my truck, circa 600k on finance over 4 years was offered at about 3.5% which is just shy of 7% really.

[Sophon]

So, for example on the (remaining after deposit) figure of 400,000 baht 5.5% interest should have been 22,000, but he was giving me a figure of 66.000 Baht for a three year loan. When I mentioned that this was actually a 16.5% interest rate he was a bit confused.

I would have been confused too. The 5.5% interest rate quoted is not what most of us would consider the real interest rate, but neither is it the equivalent of a 16.5% interest rate.

Sophon

[PeaceBlondie]

My boyfriend recently financed a Toyota (used). He quoted an interest rate they were charging him, exactly half of what I would have called it. But banks in the West did the same, before they had truth in lending acts passed.