Jul 28 2013, 05:35 PM
QUOTE(wongmunkeong @ Jul 28 2013, 04:54 PM)
GymBoi, car loans are usually calculated "flat"
VS
FD and other investments, calculated at per annum compounded basis
"Flat" rate:
Interest: 2.5% *loan amount * years of loan
Then this interest is added to the loan amount and divided by number of months of the loan
Per annum compounded basis or AKA "reducing balance" if loan:
Interest: %/12mths * amount still owed on that month
Bottom line: Usually "flat rate" is about the equivalent of 2x to get reducing balance.
ie. your 2.5% flat rate should be about 5%pa compounded.
Thus, your FD is NOT making more than what U are paying in car loan interest.
er.. the above would be clearer with pen/paper or Excel (i'm too lazy these days)
hope it's clear enough for U to think it through
VS
FD and other investments, calculated at per annum compounded basis
"Flat" rate:
Interest: 2.5% *loan amount * years of loan
Then this interest is added to the loan amount and divided by number of months of the loan
Per annum compounded basis or AKA "reducing balance" if loan:
Interest: %/12mths * amount still owed on that month
Bottom line: Usually "flat rate" is about the equivalent of 2x to get reducing balance.
ie. your 2.5% flat rate should be about 5%pa compounded.
Thus, your FD is NOT making more than what U are paying in car loan interest.
er.. the above would be clearer with pen/paper or Excel (i'm too lazy these days)
hope it's clear enough for U to think it through
QUOTE(Pink Spider @ Jul 28 2013, 05:18 PM)
Let me help Wong Sifu with a simple example 
EFFECTIVE INTEREST RATE for a 3 years loan with quoted "flat" interest of 2.5%:
E.g.
Loan amount RM10,000
Total interest: RM10,000 x 2.5% x 3 years = RM750
Repayment per year: (RM10,000 + RM750) / 3 = RM3,583.33
Put these in an Excel worksheet:
-10,000 (this is your loan amount)
3,583.33 (Year 1 repayment)
3,583.33 (Year 2 repayment)
3,583.33 (Year 3 repayment)
=IRR(A1:A4)
U will get 3.71%, that's your EFFECTIVE INTEREST RATE. If u can invest your money or get FD for rate of return better than that, then invest it. Otherwise, pay as much downpayment as u can.
Try this calculation and see what's the EIR for your car loan, GymBoi
Wow greatly appreciate 2 sifu's detailed guidance ... let's see if I get this rightEFFECTIVE INTEREST RATE for a 3 years loan with quoted "flat" interest of 2.5%:
E.g.
Loan amount RM10,000
Total interest: RM10,000 x 2.5% x 3 years = RM750
Repayment per year: (RM10,000 + RM750) / 3 = RM3,583.33
Put these in an Excel worksheet:
-10,000 (this is your loan amount)
3,583.33 (Year 1 repayment)
3,583.33 (Year 2 repayment)
3,583.33 (Year 3 repayment)
=IRR(A1:A4)
U will get 3.71%, that's your EFFECTIVE INTEREST RATE. If u can invest your money or get FD for rate of return better than that, then invest it. Otherwise, pay as much downpayment as u can.
Try this calculation and see what's the EIR for your car loan, GymBoi
Loan amount RM50,000
Total interest: RM50,000 x 2.5% x 5 years = RM6250
Repayment per year: (RM50,000 + RM6250) / 5 = RM11,250.00
Put these in an Excel worksheet:
-50,000 (this is your loan amount)
11,250 (Year 1 repayment)
11,250 (Year 2 repayment)
11,250 (Year 3 repayment)
11,250 (Year 4 repayment)
11,250 (Year 5 repayment)
= 4.06%
I'm still learning on investment so all I do now is FD .. which is max 3.2% .... this car loan is effectively 4.06% which is worst than FD ... that means i should pay as much down payment as possible ?
edit : played around with the excel ... if i stretch the repayment to 9 years it will be worst (someone's gonna say duh - give chance to newbies la haha) ... and it's actually independent on the amount you take loan .. hmm
This post has been edited by GymBoi: Jul 28 2013, 05:39 PM
Quote
I'm actually pretty similar to your case ... no money to even "kau lui" .... getting close to 30 samo .. stress ... plus i have no savings lol .. let other sifu help
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