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.