If you have ever compared car loans and home loans, you might have noticed something that does not quite add up. Some cars cost as much as a house, yet car loans are capped at nine years, while home loans can go up to 35.
According to financial educator Faiz Azmi, the difference has little to do with the price tag and everything to do with how the asset behaves over time.
It comes down to how the asset behaves over time
Cars and homes lose and gain value very differently, and that difference affects how much risk banks are willing to take.
A RM300,000 car may still have RM150,000 in outstanding loan after five years, but its market value could have dropped to RM80,000 or RM100,000. If the borrower stops paying, the bank would be left with an asset that can no longer cover the remaining debt.
That is why car loans are capped at nine years.
Homes, on the other hand, usually increase in value. This allows banks to recover their money more easily if a borrower defaults, which is why home loans can stretch up to 35 years.
So why can banks do this?
Faiz broke it down into three key reasons.
1. Cars depreciate, homes appreciate
Cars start losing value the moment they are used. Homes generally grow in value over time, which makes them far safer assets for long-term financing.
2. Longer car loans mean higher bank risk
Extending car loans to 15 or 30 years would expose banks to major losses, as the vehicle’s resale value would no longer match the outstanding loan.
3. Property protects the bank’s interest
If a homeowner defaults, the bank can auction the property, and in many cases, the sale value would exceed the remaining loan balance.
35 years does not mean you must pay for 35 years
Faiz stressed that the 35-year tenure exists mainly for flexibility, not to trap borrowers into long-term debt.
Most home loans come with flexi payment features, which allow borrowers to make extra payments toward the principal and shorten the actual loan period.
For a RM300,000 home, a 35-year loan might cost around RM1,500 per month, while a nine-year loan would cost about RM3,242 per month.
By taking a 35-year loan, paying the RM1,500 monthly instalment, and topping up about RM1,700 toward the principal, the effect is similar to a nine-year loan, but with far less pressure.
Why starting with a short loan can backfire
Faiz also warned that locking into a short loan tenure from the beginning can be risky.
Here is why:
- Monthly commitments are very high
- There is little room for financial emergencies
- Missed payments could lead to foreclosure
“Take 35 years, but pay it like nine years,” he said. “That is the smartest way to manage a home loan.”
Watch the clip here:
