FD pays 4%. car loan interest is 2.5%. whch is better ? its a very simple calculation, dont even need business sense.

Are you telling people to keep cash in FD and go take car loan?
You better think again.

You would regret keeping your cash in FD and go take a car loan.
The longer your car loan, the more u will regret.

Nope, savings are there, is just that we can't quantify it. Like the rm3600 I "saved", it become a 50% LED with a dinner in Pavillion's Kampachi

A loan that with y% of interest, the effective interest are 2X of y%

right...this is true...


im not sure about 'effective interest'...

but base on my calculation...
both FD and auto loan is 2.5%
almost have the same ending...

keep in FD, got extra RM1,200
and you got ready capital for usage...

I didn't calculate, but at a glance, I'm sure 2.5% car loan is more expensive than 4% FD.

LOL. How can we "quantify" the savings when it is not a saving but an expenditure?

If like that, then should have taken a 7 year loan. With some quick calculations, the cost of interest is almost the same (just slightly more), but you can then boast that you "save" RM6000.

Actually it's the opposite !

You don't even need calculation to know which is better. All that you need is business sense !

The banks take your FD money and loan it to people as car loan. On FD side they give out interest, on the loan side they collect interest.

Banks are not charity organization. They have to make money.

So business sense tells us FD side is smaller money than the loan side.

Seeing so many financially uneducated people here, I think Bank Negara should set a ruling that banks which give out auto loans must also alert the borrower how much effective interest they are charging

Every now and then, there are new people appear here who thought car loan interest of 2.5% is better than FD 4%. It just showed that banks have done a successful job to "con" their customer into believing car loan is a cheap loan

Common sense, will bank pay out 4% FD interest rate, and then collect just 2.5% interest ?

Emmmm, for me I take it this way : as long as I still serving a loan,(say rm1000 a month), I'll have less rm1000 of savings a month. By settling the loan fast, then every month I'll have rm1000 extra be it for savings or spending

If like that, then should have taken a shorter or bigger loan, and a higher monthly installment. Then you can have the perception that you have even more to save or spend each month after full settlement.

Anyway, you are diverting from the initial fact that you found it necessary, for whatever reason known to yourself, to have the loan and then fully settle it in the 13th months. There is an interest cost to pay for the privilege of having the loan, and in your opinion, it is worthwhile for you to have it (the loan).

Nobody is disagreeing your opinion or disputing that it is silly or stupid to do so. I, too, have taken a loan when I can pay the whole amount in one shot; albeit it was a short term of 18 months.

So you don't have to sugar coat your actions that you 'save' so-and-so much to support what you have done or to put blame on the bank on overcharging "blind blind whack" you. Otherwise Showtime747 will think the bank "have done a successful job to con" you.

Taking a longer period of loan is to have more control on our cash flow(most people will agree on this).
But I never expect I strike lottery on being sent out to Qatar which I have extra income
So I did some calculations, savings won't make more than settling the loan first, so I choose to settle the loan first.

No, most (practical) people will NOT agree on this. No such thing as "more control". Either you take "control" of the cash flow and budget, or have "no control". You took a 5-year loan, which was most suitable to you then. You did not take a longer loan than necessary, say 7 years, did you?

Yes, circumstances changed and you see it wise to settle the loan as soon as possible. No need to do any calculations... whether there is any savings or not, does it really matters if the objective is to end the loan and be debt-free? But this is your personal choice.

Some other will invest the sum of money into other means, maybe some will (mistakenly) think they will get better value by putting it into FD.

Yup, that's why I forever can't join the > 80 fellows group

If you mean 80 as in age... then the only way not to join is to die young.

With major advancements in medical science, it will not be uncommon to live beyond 100...

but, with
no other investment except in ASXs and saving in FDs
no leverage to try to generate more returns
no insurance coverage.....
I think I would like to die young too....
(pun intended...hope you get my meaning...lol)

It was a nonsense and out-of-topic reply to a out-of-topic post; as I was not about to let supersound have the last word.

====================

Now, an-in-topic reply. The only matter of facts are, as mentioned: flat rate vs effective rate, and how the interest charges will be calculated in early settlement of a flat rate loan.

It is worthwhile to take a loan when one can fully pay the car in cash? There is no right or wrong answer, and it is an individual and a personal choice. If looking at the bigger picture, it is part of money management; and everyone manages money differently in his own manner.

It is his money, so who to say that another option would be better for him?

And it is not always dollars and cents in money management, there are other things in play too. As in my case where I elected to take a loan instead of paying in cash, it is not that I have better use of my cash or have better leverage of my money.

I took a loan because I feel uneasy paying the car dealer (or more specifically the car salesman) a big sum of money in one go either in cash or in cheque. (Even cheques can be modified.) I also don't know what the proper procedure would be: downpayment together with the balance before all the documents are prepared and signed or downpayment first, excise duty paid, registration released, then only the balance, or what?

So I took the loan, and let the bank officer verified that everything is in order...

=============

I got the last post in this page.


This post has been edited by j.passing.by: Jul 26 2015, 08:34 PM

1 time 120k, no need to worry anything and bear any loan

Nope, that 80 fellows are the fellows that get sued until cannot fly, cannot own properties
But can have a bicycle

The answer is actually quite simple, if one has extra surplus money (after paid off the car in cash) which won't be needed for the next 5 years or so, you don't need to get a loan, pay off cash is better. Save interest, save loan processing fee.

Why getting a loan even though have enough cash to pay off in the first place?
Because you want to manage the cashflow, aka you won't starve of cash due to buying the car.
Typically in company situation, whereby the cash is needed to fund the operation and monthly cashflow purposes so by paying monthly instalment instead of cash, you have more cash in hand to do whatever businesses needs.

lets do a simple calculation. i take a 100k hire purchase loan at 2.5% interest. after 5 years i would have paid total 112500.

if i instead put the 100k in FD at 4% per annum, after 5 years i would have 120000 (assuming i take out the interest every year).

u still havent tell us why u think 2.5% per annum is more than 4% per annum.

i have found that business sense is rarer than you would expect. do u think 2.5% per annum is more than 4% per annum . ?

i have found that common sense is rarer than you would expect. u still havent tell us why u think 2.5% per annum is more than 4% per annum.

This post has been edited by sootienann: Jul 26 2015, 11:08 PM