Q. I’m American and my wife is from Vietnam. We’ve decided to buy a car, but I’ve never purchased a new one in Asia (we definitely want to buy new). We’re considering getting a loan from a bank. Which banks would be able to offer me an auto loan, and would I be issued the loan in my own name or would it have to be in my wife’s name? Are there any other issues that I would encounter?
Sven Roering, Managing Partner at Tenzing Pacific Investment Management, advises:
A: Firstly, kudos to you for actually making the frightening leap to driving a car around Ho Chi Minh City. You are a far braver man than I!
Wait until 2018?
When it comes to buying a car in Vietnam, you’re in luck – Vietnam imported 19,000 cars in the first quarter of 2017, a year-on-year increase of 169% volume and 82% in value, according to a report from the General Statistics Office (GSO). This trend has been witnessed since 2016, when the auto market was affected by the impact of the ASEAN Trade in Goods Agreement (ATIGA), according to which import tax was reduced from 40% to 30%, which will eventually become 0% by 2018. If you can wait until then, it may be worth your while!
In any case, there are two main options to help you finance a vehicle in Vietnam:
- A car loan from Commonwealth
Commonwealth Bank will issue you a car loan for 80% of the purchase value over a four-year term.
Rules and regulations to obtain a loan:
- You will have to present a work permit or residence card
- You will have to present documentary proof of your income
- They are not able to issue you a loan in your own name, so you would have to make a joint application with your wife, or simplify the process completely and have the application done in your wife’s name
- You will have to purchase insurance on the vehicle, which the bank might facilitate, or could be done through TPIM’s insurance division which works with multiple providers and can provide very competitive quotes
You can choose from the following interest rate structures:
- 6.99% per annum, fixed for six months; which would return to 8.49% per annum after six months
- 7.49% per annum fixed for one year; which would return to 8.99% after the initial fixed period
It’s also worthy noting that Commonwealth charge a 1% fee for early repayment in the first year; and 0.5% for early payment in the second and third year.
- A personal loan from Standard Chartered
Standard Chartered would be able to issue you a loan in your own name, but instead of a specific auto loan structure as provided by Commonwealth, they would issue the loan to you as a personal loan, which is essentially a loan issued to you for general purchases and consumption.
From the bank’s perspective, this is a riskier type of loan and they would require evidence of:
- Your employer
- Concrete proof of earnings (3 months of bank statements)
The pro of a personal loan:
- There is no fixed period or early penalty structure with the personal loan, thus you would be foregoing a lower interest rate for a more flexible loan structure
The con of a personal loan:
- You would be subject to higher interest rates of 17% – 22% per year
The first step when buying a vehicle in Vietnam
A financial institution (whether for a car loan or a personal loan) would most likely not issue a loan on a vehicle which is not insured. If it is a new vehicle this would not be too difficult; and Tenzing Pacific’s insurance division would be able to get you insured by obtaining quotes from multiple providers.
A final consideration…
When buying a car, you are buying a depreciable consumer good on credit at a relatively high interest rate. You should only consider obtaining loans against assets which are intended to produce future profits, such as investment property. A vehicle depreciates in value the second you drive it out of the showroom, and will only continue to depreciate in value until the day you scrap it.
Generally speaking, getting involved with consumer credit is not a good idea considering the high interest rates, and the fact that over time you will be paying considerably more for something that you realize you didn’t really need.
Need further assistance and advice?
Tenzing Pacific provides investment advisory services, and would be able to construct a portfolio of active mutual fund managers or direct equity, bond and commodity investments, on behalf of your plan, subject to your requirements and restrictions. For professional financial advice, don’t hesitate to get in touch with TPIM for private wealth management across Southeast Asia and beyond: http://tpim.co/contact-us/.