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Question: Auto Financing with 7% VAT Added Into Payment


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My stepson is negotiating to buy an Isuzu truck and has been quoted a price of 974,000 Baht which includes the 7% VAT tax. They ask for 20% down and balance over 84 months at 2.69% interest with financing arranged through the dealership. They enter those figures into an auto loan calculator app to determine the monthly installment, and inside the calculator is a toggle switch to turn on to calculate another 7% VAT tax into the monthly installment. In other words, they are trying to charge him the VAT twice. I keep telling him this is not correct and the VAT should be taken off the sales price before calculating the monthly installment with the VAT added to the monthly payment. Or, the entire amount, car price plus VAT, should be entered into the calculator and turn off the VAT toggle switch when computing the monthly installment. My stepson's answer is always the same...."dealer says this is the way they always do it". I tell him to walk and go somewhere else, but he's dead set on getting this truck regardless and may fall for their trick to double charge him the VAT. He's now been to three banks to ask about the double charge on the VAT tax, and no one can give him a straight answer as to why he will be charged twice for VAT. 

 

Does anyone else have any experience with this, and if so, is my stepson being taken advantage of? I have already read all the comments on a previous related topic here from years ago, but no one could give answer. Perhaps someone can come up with an answer now. 
 

Edited by fittobethaied
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I'm not sure - but I think the 2nd vat charge is on the interest amount only and have to be calculated separately from the vat on the price of the car as the vat on the price of the car is paid in full by the dealer as soon as you get the car, and the vat on the interest will be paid monthly throughout the term of the loan

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7 minutes ago, LukKrueng said:

I'm not sure - but I think the 2nd vat charge is on the interest amount only and have to be calculated separately from the vat on the price of the car as the vat on the price of the car is paid in full by the dealer as soon as you get the car, and the vat on the interest will be paid monthly throughout the term of the loan

Thanks LukKrueng! That certainly sounds plausible, but the figures don't bear that out. Financing a balance of 759,300 in this example shows a spread of 815 Baht in a monthly payment including 7% VAT and the same balance without VAT on another calculator.    

121322339_971682406642825_8711982385378068601_n (1).jpg

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I am in the process of buying a Nissan pick up with 48 monthly instalments. 

 

The reason I am doing this: 0% interest! 

 

Ford is offering the same deal by the way. 

 

As for the taxes, they are included in the initial price of the car. 

 

I don't know if financial charges (interest payment) are subject to taxation, but I doubt it. 

 

If that was the case, the monthly amount would be quite small anyway. 

 

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1 hour ago, fittobethaied said:

Thanks LukKrueng! That certainly sounds plausible, but the figures don't bear that out. Financing a balance of 759,300 in this example shows a spread of 815 Baht in a monthly payment including 7% VAT and the same balance without VAT on another calculator.    

121322339_971682406642825_8711982385378068601_n (1).jpg

Screenshot (75).png

How do you calculate the interest? 

The way they do it in the car industry is (in your case) 2.69% per year over 7 years. The % is calculated for the full amount on the loan over the full term so basically you pay 2.69% of the total amount of the loan even on the last month of payment, bringing the effective interest to much more than 2.69%

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Out if interest was calculating the real annual interest for this case and it turned out to be 5.03%.
 

I used this calculator: https://www.calculator.net/interest-rate-calculator.html

 

 

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7 minutes ago, Chungju said:

Out if interest was calculating the real annual interest for this case and it turned out to be 5.03%.
 

I used this calculator: https://www.calculator.net/interest-rate-calculator.html

 

 

Thanks Chungju, but I don't think you can see it like that. The interest rate is definitely 2.69% just like we would calculate interest back in the US, but through the algorithm in the Thai calculator they have filtered in an additional 7% for the Value Added Tax (VAT) on each monthly payment. Interest goes to the bank and the 7% goes to the government.  

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26 minutes ago, fittobethaied said:

Thanks Chungju, but I don't think you can see it like that. The interest rate is definitely 2.69% just like we would calculate interest back in the US, but through the algorithm in the Thai calculator they have filtered in an additional 7% for the Value Added Tax (VAT) on each monthly payment. Interest goes to the bank and the 7% goes to the government.  

So does it mean that the monthly payment of 10,742thb includes 7% VAT?  In other words the actual payment is 10,742/1.07=10040thb? If yes, then the real annual interest would be 3.02% by using the same calculator. If the VAT is calculated only for the interest as someone suggested, then the annual interest would be higher than this, something between 3-5%.

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32 minutes ago, fittobethaied said:

Thanks Chungju, but I don't think you can see it like that. The interest rate is definitely 2.69% just like we would calculate interest back in the US

What he said is correct, the real interest is higher than that. It can of course be that in the US companies are allowed to promote this deceiving interest rate, same as in Thailand. In other countries such an advertising would be illegal.

 

On 10/16/2020 at 5:07 PM, fittobethaied said:

I keep telling him this is not correct and the VAT should be taken off the sales price before calculating the monthly installment with the VAT added to the monthly payment.

I agree with this opinion, this is what should happen, but i don't have personal experience if this actually happens.

 

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1 minute ago, Chungju said:

So does it mean that the monthly payment of 10,742thb includes 7% VAT?  In other words the actual payment is 10,742/1.07=10040thb? If yes, then the real annual interest would be 3.02% by using the same calculator. If the VAT is calculated only for the interest as someone suggested, then the annual interest would be higher than this, something between 3-5%.

Yes, I know it's very confusing. In the US we have Truth in Lending laws and every single penny has to be explained to the purchaser or loan applicant, but over here they withhold information from a customer and never fully disclose details...just dance around any objections and the customer just caves in and agrees because they are raised to not make too much trouble for people. It's really pretty despicable and extremely frustrating. 

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Tell your stepson to seek financing at a bank, rather than thru the car dealership.

 

You stated that the cost of the vehicle with 7% VAT is 974,000 Baht, and your stepson will place a 20% down payment.

 

Approximate cost of vehicle:  910,280 Baht

7% VAT: 63,720 Baht

Total cost: 974,000 Baht

20% down payment: 194,800 Baht

Amount to finance: 779,200 Baht

Interest rate of loan: 2.69%

Length of loan: 84 months

Monthly Payment: 10,187.30 Baht

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2 hours ago, fittobethaied said:

Thanks Chungju, but I don't think you can see it like that. The interest rate is definitely 2.69% just like we would calculate interest back in the US,

In the US you will pay the quoted interest on the outstanding balance.

 

In Thailand you pay 2.69% on the total amount multiplied by the years the finance runs.

 

in your calculation the total cost of the car seems to be 949.100 Baht and not 974.000 as you claim.

 

20% deposit = 189.820 deducted from 949.100 leaves 759.280 Baht

 

they finance 759.300 Baht

 

2.69% interest on 759.300 = 20425,17 Baht x 7 years = 142.976,19 Baht

 

759.300 + 142.976,19 Baht = 902.276,19 Baht divided by 84 months = 10.741,38 Baht

 

The CIMB calculation is a personal loan, different animal from a car lease, and interests get calculated differently

 

 

 

 

 

Edited by Susco
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9 hours ago, Susco said:

In the US you will pay the quoted interest on the outstanding balance.

 

In Thailand you pay 2.69% on the total amount multiplied by the years the finance runs.

 

in your calculation the total cost of the car seems to be 949.100 Baht and not 974.000 as you claim.

 

20% deposit = 189.820 deducted from 949.100 leaves 759.280 Baht

 

they finance 759.300 Baht

 

2.69% interest on 759.300 = 20425,17 Baht x 7 years = 142.976,19 Baht

 

759.300 + 142.976,19 Baht = 902.276,19 Baht divided by 84 months = 10.741,38 Baht

 

The CIMB calculation is a personal loan, different animal from a car lease, and interests get calculated differently

 

 

 

 

 

Thanks Susco! The 949,100 was just a sample calculation that my son sent me on a photo off his phone. I don't have access to the calculator app so that I could figure the monthly payment on the 974,000 which is the true cost of the truck including VAT that he wants to buy. Your calculations seem to add up to the monthly figure that is quoted on that photo of the calculator, so it makes sense now. It appeared to me that an extra 7% VAT was being added into the monthly payment when in fact the additional charge was actually accounted for in the way they compute interest on the entire beginning balance per year instead of on the outstanding balance like we do in the US. So, just to confirm....are you POSITIVE that this is the way the finance works here? I acknowledge that what you have said definitely bears out in the figures. 

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18 minutes ago, fittobethaied said:

Thanks Susco! The 949,100 was just a sample calculation that my son sent me on a photo off his phone. I don't have access to the calculator app so that I could figure the monthly payment on the 974,000 which is the true cost of the truck including VAT that he wants to buy. Your calculations seem to add up to the monthly figure that is quoted on that photo of the calculator, so it makes sense now. It appeared to me that an extra 7% VAT was being added into the monthly payment when in fact the additional charge was actually accounted for in the way they compute interest on the entire beginning balance per year instead of on the outstanding balance like we do in the US. So, just to confirm....are you POSITIVE that this is the way the finance works here? I acknowledge that what you have said definitely bears out in the figures. 

This is how car leasing works in Thailand.

 

Interest is calculated on the full amount for the full term.

 

With personal loan, as in the CIMB calculation, and mortgages interest is calculated different.

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