PETALING JAYA, MALAYSIA - Car buyers will have to pay more in monthly instalments now that hire purchare interest rates have gone up.

Just a few months ago, banks offered interest rates at around 2.5%. Now, the rates are between 3.4% and 4.7% for new cars.

Maybank hire purchase senior manager Nor Siah Othman said the bank had experienced a drop of about 40% in car loan applications in the past two months due to higher rates.

She also advised car owners to restructure their loans to stretch the monthly payments longer after a few years of repayments if they find it a burden to service their loans.

A freelance car salesman identified only as Teo said a buyer taking a RM42,000 loan would have to pay about RM54,000 over seven years - about RM4,000 more compared to the RM50,000 paid when the interest rate was 2.7%.

AmBank group public relations manager Norlidah Abd Rahman said not all banks charged as high as 4.3%.

'If the car bought now did not carry extended warranty under comprehensive insurance, the interest rate could be as low as 3.6% - 3.9% too,' she said.

A hire-purchase executive from a major bank here said the rates were not expected to fall any time soon as banks were anticipating Bank Negara to raise the interbank rate that would affect the interest rates for housing and car loans.

She added that the Hire Purchase Act did provide for a variable rate option for car loan holders based on the base lending rate used by banks mostly for housing loans.

'But most customers do not choose the variable rate; most people prefer the fixed interest rate because they are lower,' she said.

Kuala Lumpur and Selangor Car Dealers and Credit Companies Association president Khoo Kah Jin said interest rates for new cars were not that high at between 3.5% and 3.7%.

He said there was no reason for used car interest rates to be as high as 4.5% - 7.5%.

Khoo said the association had always pushed for the interest rates for used cars to be only 1% higher that of new cars.