I bought a car cost 30k , so i took up full loan , every month paying 500 for 5 years

but now i`ve got 30k cash in hand , should i pay up all sum or keep the cash and continue installment ?

if u can make early settlement within 1 yr only perhaps u shud get discount frm interest

Your cash is currently bringing you an income yield of 2.5% if you place it in 12mth FD. I don't know what is the interest rate of your car loan. If it is also 2.5%, then you can consider to make a early settlement of your car loan. Because the hire purchase interest rate is based on flat rate per annum, therefore 2.5% HP rate is not an effective rate and it could be probably 3.5% to 4% effectively.
Aother important consideration is that whether you need to use the cash for other contingency or purchases in 5 years time.

BrotherHoe,

1) In general, you do not get much discount on car loan interest even if you pay off earlier. That is WHY I constantly tell people to be VERY CAREFUL on getting car loan with long tenure (5 years, 7 years, 9 years).

2) It is VERY SIMPLE. Just ask the bank to run the calculation for you. Tell them to check that if you want to payoff the loan at certain date, what is the amount. Then, you can make the decision.

3) It is STUPID to pay off the car loan if you have no emergency fund.

Dreamer

This post has been edited by dreamer101: Jul 26 2009, 09:19 AM

i think you better not to settle you car loan instead of invest it. i think your car loan interest rate is about 3% pa, investment such as asn/asm/asb & others can give you higher than 3% pa return

Well, I believe our banks are using " the sum of digit method " ( rule of 78 ) to compute the refund for car early settlement. (plse check with banks for further details )

By using this method , a bulk of total interest is earned in the earlier years. Let say you have a car loan for 6 six years, ( rough estimate only) the bank would have earned up to about 75 % ) of total interest by end of third year.

Though you may have half the instalments left ( 3 more years to go ), bank earns up to 75 % interest already .

Formula for calculating the unearned interest:

u = f X k(k+1)/n(n+1) u = unearned interest; f = total agreed finance charges; k = number of months paying off early; n = total term of loan in months


Please take note that US had banned the use of Rule of 78 for car loans with 5 years tenure and below.


If you have a flexi housing loan, may as well park your money here.

Just my personal opinion only.

Happy Planning.

This post has been edited by SKY 1809: Jul 26 2009, 04:46 PM

Right. For HP loan, it is still worth while to settle it within the first half of your loan tenure. The bank will rebate your loan interest based on rule78 pro-rate formula.
Don't bother to settle your HP loan if your repayment is in 2nd half of the loan tenure. The loan interest rebate will be negligible.

Believe it or not, the most ideal car loan is for one year duration. The Flat rate interest would be closer to the Reducing term method.

But you have to make sure it is a year HP agreement, not a 6 years HP agreement.

Who ever grants you such a loan, that banker officer might get lecturing from his /her senior.

This post has been edited by SKY 1809: Jul 26 2009, 03:56 PM

you may consider invest half the money into insurance plans, FD's and share market. Early settlement on car loan is not recommended unless you had no placed to put the money into..

http://www.bankrate.com/brm/news/auto/20010827a.asp

hey guys , thanks for the information , its very helpful

my interest rate is 3.5 p.a because its used car

i`ll consider invest in fund.

definitely don't pay off your car loan. save the money in FD first. then think about what other ways you can get better return than FD and safely.

I have been trying to get 1 year car loan for more than 15 years, no luck

insurance is a bad suggestion in this case, insurance is another long term commitment. buy insurance when having ONE lump sum money is a bad idea. buy insurance when the monthly repayment is a small part of your constant cash flow, ie salary, not when you have a lump sum to work with.

even those pension alike lump sum premium policy, is usually giving lower than FD return.

Car loan aka Hire purchase is not amortized. House Loan aka Mortgage is amortized. In plain English, if you pay the car loan immediately, you still need to pay the interest. It serve no purpose to pay early. Better use your RM 30K for other gain yielding purpose.

Xuzen

I suggest you to keep the money and invest it somewhere else.In case something happen, you can use the cash.

If u settle the loan, u got no extra money for rainy days.

so meaning..no point to pay full settlement for car HP since there is no rebate wif d interest isnt it?

mine is 9 years wif 4.3% interest....

keep the money and look for any investment that has higher interest rate compared to the interest rate of the loan !

Your effective rate is 7.59% p.a. If your HP loan is still new and you have more than enough cash sitting lazily in FD at 2.5%, by transferring the funds from FD to HP. you make your money work 3 times harder.

Mine was 7 years with 4.7%. Lagi teruk. So should I settle them early? my car loan is about 20k. Advice, anyone?

erkkk..kinda confuse laaa wif ur statement...coz im not familiar wif finace terms..mind xplaining in simple english???

my cars is 3 years old already....so another 6years to go...

Using that rule of 78 formula, I calculated my 9-year car loan and found that 50% of the interest is charged in the first 2.5 years.

Exactly halfway, where I am now (4.5 years) through the loan tenure, 75% of the interest is charged, so only 25% of the interest is refundable, sigh.

how to calculate the effective interest rate? what actually is that?

You need a financial calculator to compute effective interest rate.

don't have any formula for it? if I have the calculator, what should I press?

I think there are so many advices that confusing you.
To simplify what they talked about:-
1. Your interest rate is 3.5% which is not amortized. This is equavailent to effective rate of 7.x% as described by one of the forumer. Meaning, this is equal to 7.x% Fixed Deposit interest rate. The current FD rate is 2.5%.

2. Do you know settle you car loan earlier you can save interest? Let say u take 5 year loan and now you at 3rd year. if you settle it at 3rd year, they will fine you 1 year interest and deduct the last year interest for you. Check out the $ you can save from Hong Leong website. https://www.ecloan.com.my/calculator/loan_settlement.asp. You should negotiate with the bank regarding the fine. Anything under the sun can be discussed.

3. In order for you truely get the benefit, you need to get an investment higher than 7.x %/year + the fine if you want to reap the benefit of keeping the money.

4. If you are a person that dun like debts, you shd pay it off to clear your mind.

5. If you have an investment that can yield more than 7% and potentially go higher in future, keep the money.

Your reasoning seems a bit off. Some other forumers have given the Rule of 78 formula earlier in the thread, which when lookign through your Hong Leong website source, seems that that is the exact formula the calculator is using too.



Anyway I did some playing around with the formula, and in general it seems if you redeem your loan halfway through the payment period you are only rebated 25% of the interest.

Fine ?? Very unlikely. Car loan is under HP act 1967, There is no such provision in the HP act.

Careful with Hong Leong Bank....they will cheat you on interest when you make early settlement.

A DIRT SHITTY Bank!!!

really thanks for informing

No worry
Just complaint to BNM

ur right!
better put into house loan or stock market...

What documents need to bring to bank for car loan settlement?

Do we pay car loan after minus rebate?

Rule 78 is used in most cases but it is a bit complicated for layman to understand.
Here's some real life examples.

I intend to settle both my car loans in Feb 2014 and the bank has given me the following settlement amount if I settle before end Feb.

Car 1
I took a 6 year loan for RM 320k in Dec 2010.
Interest is 2.58%.
Amount outstanding is is RM 185k.
I have paid about 36 installments.
To settle the loan by end Feb, I have to pay about RM 174k - this figure is given by my bank.
The total interest payable is 2.58% x 6 x 320,000 = RM 49,536.
Since my loan is already half way through the interest I should pay should only be RM 24,768.
So this means if there is no penalty for early repayment to settle the loan I should pay only RM 185k less RM 24,768 = RM 160,232.
This means the penalty I am paying for early repayment is RM 13, 768 or equivalent to 20 months interest.

Car 2
I took a 5 year loan of RM 170k for in Oct 2012.
Interest is 2.32%.
Amount outstanding is RM 142.5k.
I have paid about 15 installments.
The bank told me to settle the loan by Feb, I have to pay about RM 133k.
Total interest payable is RM 19,720.
Since my loan so far is 15 months old, the interest I should be paying is RM 4,930.
So if there is no penalty I would have to pay RM 142.5k - RM 14,790 = RM 127,710.
This means the penalty of early repayment is RM 5290 or 16 months interest.

In short penalty for early repayment is high.
But I would still advise you to settle if you can.
Good not to owe banks money. Also makes it earlier to aim for you next car.
But make sure you have at least spare cash equivalent to 3 months of your salary for emergency. 6 months spare cash is best.

No documents. Just go to the bank. They will also give you a letter of release to remove the HP on your registration card.

Thanks.

Sorry if this is not relevant to this thread, just tumpang only.

Does it make sense to compare it this way?

100k car loan 7 years @2.33% total interest=Rm16310

100K FD 7 years @4.5% compounded total interest =rm36083

100k AS1M 7 years @6% total dividend= RM50363

So better to take loan then to withdraw from FD or AS1m to pay car in cash?

This post has been edited by MGM: Jan 5 2014, 07:47 AM

I just been told by bank that if pay using cheque, it will takes 3 working days.

Is that mean, I will get release letter and grant after 3 days, not after paying by cheque?

Don't worry about the release letter as you will not be rushing off to JPj straightaway.

I usually keep with my registration card and do it when I next renew my road tax.
But yes, the bank will only prepare the letter after your cheque is cleared.

Any proof of transaction like receipt, after loan settlement provide by bank?

I have settled my car loan for nearly a year and I didn't receive any release letter from MBB.

I asked if they'll issue anything after I made my last payment. The bank officer said no and just asked me to go to JPJ to get the "BATAL" stamp at the bank ownership claim.

Maybe everything is electronic transfer now.

Bank supposedly will help you to get e-batal thing from JPJ. Then they will return your geran together with e-batal acknowledgement.
If they don't do that, you have to do that e-batal thing on your own.

How to do the e-batal thing on my own? Website?

Not sure if can do online. Best is to go to JPJ counter to check with them directly.

The bank will give you an e-batal form after car loan settlement. Use it to transfer ownership at JPJ.

yes correct.

Went to JPJ just now and they said the bank hasn't performed the e-Batal thingy. It's nearly one year! Wasted trip!

Call them and make sure they do e-batal before going to JPJ.

I thought that they have done it since it's nearly a year.

Hope this links help too:

http://www.ugrowit.net/0515-personal-finance-rule-of-78s/
www.dbcf.state.ms.us