Vat On Car Financing

[tigermonkey]

My wife is buying a car ( against my better judgement) and she has selected the car, and made all the arrangements, but she is a little short on cash to complete the deal. She is Thai and I am Canadian Expat .

She has arranged financing for the 140,000 Baht shortfall, and I asked to review the the arrangement. Three years of monthly payments of 5160 Baht - and she tells me the interest rate is 8%.

It didn't look right -- so I fed the numbers into the computer --- and it said 19.3% interest !

The finance guy responded that, yes it is 8 % plus VAT --and this is the difference, he says -- and no more explanation .

Can anyone explain to me how they calculate interest in LOS -- and what is the VAT charged on ? -- I do not understand, and I think that she is being ripped off -- but she is Thai, and says all is OK !

[LivinLOS]

Thais calculate simple interest.. So she pays 8% over the whole term, not 8% on the money outstanding.. I had a buddy boasting about how he got such great cheap credit terms at 3% for his truck, asked him his payments and showed him how thats really about 6% !!

However even then 140 @ 8% would be 11.2 per year * 3 = 33.6

Dont know what rate VAT would apply on a service like loans ??

[Gulfsailor]

Been living and working for quite a few years in Thailand, but never interested in sharing my political views on a forum like this. However, I may be able to shed some light on this VAT question, so I decided to sign up and this is my first post.

Like the previous poster mentioned, the interest is charged over the entire loan amount over the entire term, nearly doubling the effective rate when paid back in 4 years. So better to pay back in the least amount time.

The choice for a lease company is to be made with some reservations, depending on not only the interest rate and time of payback they offer, but also if you buy as a company or as individual and if you buy a 'normal' sedan or SUV car or something like a pick-up truck.

A loan for a car that is offered by many companies is considered a financial lease, where the lessor holds on to the ownership papers, until all payments are made. Leasing is applicable to VAT. In your case that means that your monthly installments consist of 1)repayment 2)interest 3)7% VAT over 1 and 2.

If a private person buys a new pickup truck under such a scheme then this it all just fine. The lessor buys the car from the dealer and get the VAT for it back from the Revenue department. It then calculates the repayment amounts over the ex-VAT amount, adds the interest and then adds VAT to the total. So apart from the interest you won't pay extra.

If a private person buys a used car under such a scheme, it will be different. The lessor buys the car from the seller, but cannot claim the 7% VAT back and thus will calculate the payments over the inclusing VAT price of the car. It then still needs to add VAT to its service, so in effect you pay twice the VAT.

If you buy a car as a company it gets even stranger, since there is a difference between vehicles desrcibed as for commercial use and those that are not. Big trucks and pick up trucks in most cases are, but sedans and SUV's are not. A company can only claim the VAT back on cars designated as having a commercial purpose. So when a VAT-registered company buys a used SUV on a financial lease basis, the revenue department will get 3x the VAT: 1) at time of purchase from original owner, who can't claim it back no matter if he is a private individual or a company, it not being a 'commercial' vehicle, 2) at time when the lessor buys the car from the first owner (or dealer) it buys the car VAT included (but not mentioned on invoice), it then has to add 7% VAT on the monthly installments, which cannot be claimed back by the lessee, 3) When the company wants to sell the car, it needs to add 7% VAT, because of its VAT registration.

This ofcourse will repeat itself when the next owner is also a VAT registered business...

Lesson for companies: Only buy a used or new vehicle designated as 'commercial' or when wanting to put a non-commercial vehicle in the company's books and you can't or don't want to pay the full price upfront, then don't take a financial lease plan, but take out a loan from the bank.

Many people and businesses applaud the seemingly low VAT rate in Thailand, but the way it is being applied to many products and services, it looks more like a salestax and over time the 'low' 7% adds up to a much higher income for the revenue department than the 20% or so VAT applied just once in most European countries.

[Gary A]

When doing finance deals the whole truth is lacking in a lot of cases. I was quoted a VERY low rate. I took my calculator the next time and the figures were way off. When I quizzed the salesman he insisted the figures were correct. It turned out the interest rate was per month, not per year. Not exactly a lie but pretty close to a lie.

[tigermonkey]

Thanks for wonderful information -- thanks so much -- I got out the calculator and figured it out . I still don't believe how they do some of these stange things here -- at least strange to the rest of the world!

If she finances 140,000 Baht at 8% -- 8% of the initial balance for the entire term -- that comes to 173,600 Baht principal and interest --- then multiply the whole amount by 7% for VAT ( 12,152 Baht) --- add it all up and divide it over the 36 month term -- and we get 5,160 Baht per month .

I never would have come to this conclusion alone -- thanks again.