071 - Car Loan - Calculate the Real Interest Rate

Today let's calculate the real interest rate for car loan available in Malaysia.

Car loans interest rate, in Malaysia, is not quoted in compound rate. Instead, it is quoted in simple interest rate.

Let's use this scenario as example.

Loan amount:- RM30,000

Interest Rate:- 3.0%

Loan tenure:- 5 years.

Step 1:- Calculate the interest for 5 years

Interest (RM) = Loan Amount  x  Interest Rate  x  Loan Tenure

                       = RM30,000  x  3%  x  5 years

                       = RM4,500

Step 2:- Calculate the total amount with interest

Total amount = Loan amount  +  Interest

                      = RM30,000  +  RM4,500

                      = RM34,500

Step 3:- Calculate the monthly payment amount

Monthly payment amount = Total Amount  /  Number of Months

                                          = RM34,500  /  60

                                          = 575

Step 4:- Calculate the real interest rate using a financial calculator

(For this step, you may use a financial calculator or an app.)

Present Value = -30,000

Payment = 575

Future Value = 0

Periods = 60

Compounding = Monthly

Solve Annual Rate.

Annual Rates = 5.64%

Therefore, the real interest rate is 5.64%, almost double of the face rate. So the next time you see interest rate for car loan or personal loan and wonders are they low, just double the rate. Then you may compare with rate of home loan.


The home loan rate in Malaysia now range from 4.45% to 5.05%.