Debt has become a common aspect of life today, affecting individuals, businesses, and even entire countries. It is often said that without debt, we wouldn’t own anything, and there is some truth to this assumption.

However, this should not be used as an excuse to accumulate unnecessary debt. Excessive debt can lead to negative outcomes.

When used wisely, debt can be beneficial. For example, productive debt is taken on to acquire assets that may generate income in the future. As the value of these assets increases and the debt burden decreases, you can enjoy the benefits of this type of debt over time.

Read More: Unexpected Expenses for Broken Cars or Motorbikes

Things to Consider Before Taking Car Installments

Taking car installments involves financing the purchase of a vehicle by paying for it in stages, rather than all at once. This method allows you to divide the cost of the car into several payments, usually made monthly. Here are the key aspects and benefits of taking car installments:

1. Down Payment 

Initially, you need to prepare funds to pay the down payment. Typically, this amount is a percentage of the car's purchase price. The amount can vary from small to large. You need to consider this amount as it relates to your future payment capability.

For example, if you make a large down payment, your subsequent installments may be smaller or shorter. Conversely, if you have limited funds for the down payment, your installments are likely to be larger and for a longer duration.

2. Loan Agreement 

You will sign a loan agreement with a bank, credit union, or the dealer's finance department. This agreement outlines the total amount borrowed, interest rate, repayment period, and monthly installment amount.

3. Monthly Payments 

Once you successfully obtain the car, you will make regular monthly payments over the loan term, which can range from 12 to 72 months or more. Payments typically include principal (the amount borrowed) and interest (the cost of the loan), depending on the initial agreement.

4. Interest Rate 

The interest rate is the cost of borrowing money and can be fixed or variable. A fixed interest rate remains unchanged throughout the loan term, while a variable rate can change based on market conditions.

Although installments make car purchases more accessible, you will ultimately pay more due to the interest that must be paid each month. It’s essential to compare loan offers to find the best interest rate.

5. Repayment Term 

The repayment term is the duration over which you will repay the loan. A longer term results in lower monthly payments but can lead to higher total interest costs. A longer term reduces monthly payments but increases the total cost of the car.

6. Ownership 

During the loan term, you typically do not own the car outright. The lender holds a lien on the vehicle, meaning they have a claim on it until the loan is fully paid. Only after the loan is settled can you fully own the car.

7. Insurance Requirements 

Lenders often require comprehensive insurance coverage on the car until the loan is fully paid off.

Taking car installments can make vehicle ownership more feasible, but it’s crucial to carefully review the loan requirements, consider the total financing costs, and ensure it fits your budget.

Read More: Need Working Capital Loans? Neo Pinjam is the Solution!

Ideal Debt Load

Even with debt, you can maintain healthy finances by carefully managing your debt-to-income ratio. Ideally, your debt should not exceed 30% of your income. Avoid exceeding this threshold, as you need to budget for other expenses like living costs, transportation, and entertainment. For example, with a monthly salary of Rp6,000,000, here’s how to calculate the appropriate amount of debt you can manage:

• Monthly Income: Rp6,000,000
• Debt: 30% x Rp6,000,000 = Rp1,800,000

Therefore, your total debt should not exceed Rp1,800,000 per month.

Can a Salary of 6 Million Cover Car Installments?

With the recommended debt limit of 30%, which equals Rp1.8 million from your income, you can finance car installments with a monthly salary of Rp6 million. However, you need to adjust the car price, down payment amount, and loan term according to your situation.

Car Installment Simulation

If you want to buy a car priced at Rp200 million, you need to pay a down payment of 25% of the car's price, which is around Rp50 million. With a loan term of 10 years, your monthly installment would be Rp1.75 million.

Remember, you must pay a minimum down payment of 25% of the car's price. Additionally, the car's price should not exceed Rp200 million. If the price is higher, you will need to prepare a larger down payment.

Keep in mind that you should pay a minimum down payment of 25% of the car's price. Also, consider the interest rate on the loan, as the example given uses an interest rate of 8%. Each leasing company offers different interest rates and loan terms.

A larger down payment will result in lower monthly installments or a shorter loan term. You can choose to repay the loan over 3 or 5 years, but be aware that this will increase the total amount paid. Choose a term that aligns with your financial capability.

The key is to align your payments with your income. If you don’t have the funds yet, consider saving first using the neobank app from Bank Neo Commerce.

Download the neobank app on PlayStore and App Store. Open Tabungan Neo, Tabungan NOW,  Deposito WOW, or Deposito Flexi now!

For complete information and terms & conditions regarding savings at neobank, visit bit.ly/neotabungandeposito. 

***

PT Bank Neo Commerce Tbk is licensed & supervised by the Financial Services Authority (OJK) and is a member of the Deposit Insurance Corporation (LPS).