Dear all,

Let's say you have 120k in cash and would like to buy a new car. What is the best strategy financially?
- To buy the car with cash?
- To pay only minimum amount required?

In the latter scenario, would it be better to stretch the number of year to maximum (9 years) or make it shortest (1-2 year)?

My calculation model shows that paying the minimum amount required and stretch the loan to maximum number of years is the most profitable. But advices that I get from the Internet is to put as much downpayment as possible.

I am confused. Please enlighten me.

Thanks!!

Pay cash but pay all...that's better..no need worry anything

^ Do you have any calculations to share with us?

depends bro..
for me la..if i got 120k in hand..
i will spend 30% or max 50% of my cash..
i like keep money if hand..
car loan for me is if can buy the whole car but must left enough cash in hand.
if not pay higher down payment and make it shortest..

looks loke everybody is giving the same advise of having our loan shorter

can someone share the calculations with us?

thanks!!

I heard that paying all in cash will lead to some kind of govt tax.
Maybe someone could explain if this kind of thing really happen.

Only if you've been evading tax such as extra income that you did not report to the LHDN. But if you're really clean and you are cash rich, then yeah. Why not ? Just pay cash

yes, it happens in Agartha or Kingdom of Saguenay.
but never heard about such taxes here.

bro..simple calculation here..
if the car value at 60k..
then interest rate is 3%(exp only)
then every year you need pay 1.8k..
so if take 9yr loan then you need pay extra 16.2k..
so total value of the car will be 76200.
beside that, take 9yr loan,if you got plan after a few year you use that car,its better to take shorter loan because if you take 9yr loan,then when you sell then car,sometime after you sell then car you still need add up some money to settle the bank loan cause car value drop every year =D

@MilesAndMore: thanks for the explaination.
TS: I think it would be better to diversify your cash, rather than put all into the car.

^ that is assuming your cash sits under your bed (you can't hide 120k under pillow without getting any attention).

if we can generate higher return with that cash vis a vis the loan interest, am i right to say we should pay minimum amount and extend the loan period to maximum?

---

Added on September 17, 2011, 3:21 am@EquinoX
it seems that we have the same wavelength.

This post has been edited by new[x]: Sep 17 2011, 03:21 AM

YUP..I'm the kind of person you saying.
I use my cash more on investment and only 30% of my money for down payment.
then every month my loan payment all come from my investment

the good thing of short loan is so that when u sell the car u get back cash
unlike 10% downpayment and loan for 9 years,the first 3 years u are paying for the interest only...so as ur car depreciate and when u need to sell ur car,lets say ur car market value 0k...but u still owe bank 80k...in order to sell your car u have to settle bank another 30k

YA, its better pay down payment or 20% - 30% ( plan first) ..take loan for balance. shorter time is better. the rest of money can invest, which can generate more than 3% annual return.

CEO/director seldom buy cars CASH.

If cash out rm120k, no returns. if pay 60K and put 60K in a investmnt at least can generate 5%,...... 3% for car instalment and 2% as income for balance 60K.

My mother pays cash for her car and I can see the advantages. Eg. If we buy a car on loan of 100K. After paying the car, we would have already paid 136K for the car and if the value of the car 30K after 9 years. It means the owner lost 106K if he decides to sell the car. But if it was paid cash then he loses 70K for the car. Imagine if the car is a supercar, what will the loses be? It means that if you are taking a loan, then the usage of the car is RM981 per month while if you have the means to pay cash you spend RM648 per month.

If you are a businessman and if the cash can generate more income than it is wiser to use the funds for your business. But most businesses have their own pool of finance and car is more of a personal matter. How sure are you that the funds can generate more income than the interest rate that financial instituitions charges? It all comes to whether you have the extra funds and if it is just lying in the bank then you save more for a car usage if you pay cash. Who wants to borrow when they can afford?

This is your own choice really. To what you have plan for yourself.

You pay cash for car, no need to worry later days you don't have money to pay back. And for the moment, you have nothing to invest in.

You pay some cash for the car, and invest in other things.

What I do is, I pay 10% for the car. I put the rest in investment. And I settle the car loan in 2~3 years time. That is what I did. Because for me, I need cash in hand for investment and business.

For you it might be different case.

For me, it's very simple.
In term of monetary, if u think your investment return rate is higher than the loan interest rate, then pay minimum & strength the period.
And vise versa.

if u pay cash, then your money will stuck in a depreciating asset. if an investment opportunity comes, u do not hv the capital if most of ur money already dumped on the car. yes, u can refinance but it already defeats the purpose of buying cash.

the present n future value prevails here. 120k cash car? ok if its just 0.1% of ur money.

Let me be the devil.

We're always on the assumption that we're going to sell the car thus the "car value" depreciation that we always talk about when it comes to car. What if we don't intend to sell the car??

But remember, we're also always talking about depreciation in currency. And since interest rate is fixed, wouldn't paying RM1000 monthly loan repayment for example is actually paying lesser when it comes to depreciation of money at later years.?

heheh - bro b00n, same wave-length, buy and use until...

I think the bottom BOTTOM line would be the cost of loan/HP (cars are straight line methink, gotta convert to effective % per annum compounded) VS whatever opportunities that can be presented during the life time of the loan - as a fellow forumer stated earlier somewhere in this topic/thread.

Mind U, if the difference is less than 2%, i think i'd buy cash (assuming $120K is less than 3%-5% of my investment assets) - one is FOR SURE (loan interest), one is probability-based (investments/trades).

Just a thought

Agreed.
If one is always on the assumption that I'll eventually sell the car; then to me it's not a wise choice to pay it up all in cash. Why pay a full amount in cash when one knows the asset they are holding is going to depreciate when selling off. Thus a wiser thing to do is to assume when one is going to sell his car as well as the expected prices during then to calculate how much down payment one's going to put down as well as interest they are going to pay so they don't end up losing out that much.

If you can invest with something that can beat the car's interest rate, then should just pay minimum down payment and use the rest of the money for investment..

NONSENSE
buy cash if u have the cash

60k invested for 3% gains is only rm1800/year which comes up to rm150/month, I highly doubt that is enough for his monthly car installments...

For me, I would spend as little as possible for the car (e.g. 40k for 80k car) and focus majority of my cash for building future wealth... If possible, wouldn't purchase a car at all and continue using the old/2nd hand car if still in working condition

As the saying goes, suffer early enjoy later "先苦后甜", I'm pretty sure this won't be your final car this lifetime

This post has been edited by CSS: Sep 17 2011, 02:16 PM

A 3% car loan, is never a "3%" net interest you are paying.
It is much higher than 3%.

---

Added on September 17, 2011, 2:15 pmYou don't get 2% out of it.

Car loan math is not like that.


This post has been edited by cherroy: Sep 17 2011, 02:15 PM

exactly. 3% car loan is equivalent to about 5.9% compounded interest rate..

It is not easy to find an investment that can generate more than 5% in current environment.

There is reason for some director not pay in cash.

The money can be used for own business purpose, for cashflow which is bread and butter for any business, and can be cheaper than using OD facilities.
The loan interest is tax deductible under company car.

But for company that are cash rich, there are company that pay in full cash.

This post has been edited by cherroy: Sep 17 2011, 02:27 PM

Of course it's nonsense if one lives in a single point-of-view world only
Then again, it depends.. U may be right!

Ah... many of them do buy car with cash. Some purposely avoid to pay by cash at one go mainly because they are afraid of LHDN comes knocking on their doors


Agreed! A few of my friends got their first Japanese car when they first enrolled into local public university. The parents wanted to pay by cash but they worried this might get the unwanted attention (LHDN). So, the parents put a downpayment of about 60% and the rest borrowed from bank with a repayment period of just 3-year (the shortest). So, the parents did not pay at one go not because they think they can get better return using the cash they have elsewhere. It was because they do not want to get into trouble with LHDN

By the way, those people i just mentioned are no doubt born silver spoon fed. One must always have some cash on hands. Cash is king during recession after all. If you only have RM120k now and want to buy a RM120k car. I will definitely advise you not to proceed with your plan. Instead, buy a cheaper car. Put a downpayment of around 40%-50% and the rest go for loan.

This post has been edited by MilesAndMore: Sep 17 2011, 02:52 PM

I my opinion if you intend to sell after 5 years AND still have another 2 years to pay the bank, it might be easier to sell it off because the purchaser can just take over the bank loan.

If lets say you buy a 50k car with cash. 5 years down the road the car might only be worth 40k, you are obviously wanting all that money straight up. The new purchaser has to go through the trouble of getting that 40k loan.

with RM120k value of new car.. i couldn't accept the depreciation, TS i would only buy a old junk car which still will depreciate but not so much.. So i think ppl who going for 120k new car had to be extra rich or else that's a not so wise choice..

This post has been edited by alwjmonster: Sep 17 2011, 05:31 PM

reinvest your 120k until you get 500k, then buy a 200k car with cash. still got 300k on hand.

It takes a genius to turn 120k into 500k.

Genius OR persistence + a good plan & time OR bloody lucky "sai lang" / "show hand" short term trade

Anyways, these are beside the point as Thread Starter may be a multi-millionaire and this $120K may be like 0.5% to 1% of his net worth since he has the cash on hand.

This post has been edited by wongmunkeong: Sep 17 2011, 08:51 PM

Conclusion:
a) if TS money lying around in the bank or under his pillow, he can opt to buy CASH.

b) if TS has other place to put his money such as paper assets, properties etc, then its not very wise to buy CASH. Unless, the his investment does not need the the extra CASH.

Still, its personal choice.

Thank you everyone for your contributions in this thread.

I agreed with Edyek's conclusion and decide to go with the latter option.

Cheers.

To my humble opinion,

whenever you decide to purchase a tangible asset, in this case, a 120k car, it can also be a 300k property,

if u do it with cash in a lump sum, LHDN or inland revenue will be alerted. Simple audit will figure whether your legal earnings (those figures that you report to Tax dept. annually) enable you to do so.

Back to the question, if HP interest rate is 5%, and you take a 9 year loan, cost of car + ins. appx.1.5k,
100% loan spread 9 years, you will have to bear appx. 55k in interest. Need not be overwhelmed with the interest considering inflation rate of appx.3% annually and theres no econs crisis, i would say you may have actually earned if HP % surge steadily with inflation.

Assuming you are a typical wealthy person whom is eager to settle things on the spot....
you may consider, paying a minimum downpayment to get the car on the road instantly without flashing your LHDN friend. Commit to your instalment plan, actively repay in comfortable amount say 10k, 15k every couple of months and settle the loan in 2 years spread.

I am not sure whether it will work for u, welcome to comment and advise.

---

Added on September 18, 2011, 5:31 pmprovided your investment doesn't take years, otherwise the 500k may worth not much than 120k in future God knows when.

This post has been edited by scottlwt: Sep 18 2011, 05:31 PM

Looks like I'm late to the party. Nevermind, I'll add it in anyway.

If you're comparing hire purchase interest against term loans/OD, bank deposit returns, investment returns, etc; KIV the different way HP interest is calculated.

For instance, if you take a RM10,000 loan from a bank, at 3% pa, for 5 years, the installment would be about RM177 per month, and after 5 years, you would have paid RM10,795.

If you take a RM10,000 HP, at 3%, for 5 years, the interest would be RM1500, and you would pay back a total of RM11,500.

Since the money is under the pillow, My advice is pay cash if you are buying a used car.

Your money work 2x harder for you by saving the HP interest cost which is higher than any FD rate in Malaysia.

Your car is fully paid and your money is "protected" from unwise spending in the future.

But if you are buying a new car and your income tax records doesn't commensurate with your spending, then you must take a car loan. The different between buying new car and used car from the tax point of view are:

New car: Excise duty, sales tax are paid under your name. Therefore you actually officially inform LHDN that you are buying a new car.

Used car: No LHDN tax related documents involved.

If u can generate return more than 2 times of ur car interest with the same lump sum cash... then go for loan... else pay full cash...

If you have a property, you can refinance your property. Take out 120k loan to buy car and deposit your 120k cash into your offset account. Then you will not be charged for any interest and still maintain the flexibility of the money in case u ever need them in emergency..

as long as you got other alternative investment can yield better return than the car loan interest rate...then i will just take loan...or in some cases where your company got subsidize car loan interest...then let your company pay the car interest rate la...and you can just keep the cash balance even in FD...


i think 99% i won't pay cash la...

And I believe Gourmen will launch some 'inspection' on you if you pay that large amount of cash to buy a car

But if you buy second hand car, will LHDN know?

I dun understand yr method ^. If you refinance your house and take the 120k cash to buy car, then there is no more money to "deposit your 120k cash into yr offset account." where did this moeny come from? magic? drop from the sky? You will still be charged interest based on the home loan interest rates

---

Added on October 1, 2011, 10:39 pmMy opinion, if you are buying a car, then aim to avoid taking up a loan and pay full cash if you have the means. This is becuase car is a depreciatable item and certain car (continental) depreciate faster than others. You want to avoid a situation where the car depreciates faster than the repayment amout, which essentially means even if you sell the car, you still owe bank/finance company money.

This post has been edited by mercury8400: Oct 1 2011, 10:39 PM

When you buy car cash, no more loan.
When you buy car minimum amount, you need a loan.
Lastly you need to pay the interest.
The different is, you have cash and you can spend for petrol and accessory.

If you can earn high interest than the Car's Hire Purchase Interest (within the loan period), you should go for installment.

Better buy house or another assets.
Value the car will decreased every year.
Value of house will increased.

TS already have 120k to buy the car cash. The question was whether he should use it all to buy a car cash, and have no spare funds. Or take HP.

The refinance house thing is a proposed third option. Buy the car cash. Then refinance house, and put the money back in the bank. This way you get "spare cash". IINM, interest would be much much lower than HP. Plus you're not actually using the cash, so costs would be even lower compared to HP. And you still have the flexibility of having 120k to chase up any business opportunity that comes up.

if you pay 100% cash, the next day income tax fellow will find you

its still better to pay 50 : 50

---

Added on October 2, 2011, 10:33 pmdude, TS probaby has a house already. he was asking which is the best method to buy a car

This post has been edited by squarepilot: Oct 2 2011, 10:33 PM

many people misunderstood this, it only apply to those who understate their tax payable

I agree with @yhtan. @Squarepilot, if I've declare my income (say RM 1mil) , I can buy any items with CASH (say items costing around RM 100k) anytime without LHDN coming knocking at my doors. Unless I declare my income (say RM 100k), and buying CASH (say items costing around RM 100k), then I will have problem with LHDN.

better pay installament rather than paying full cash.
car interest not much come to house interest ..

no penalty but most likely will need pay part of the initial interest.

i tried asking bank when i have around 1.5 years installment left, they give me very little discount.

example balance rm10000, they give me like 3% discount only.

Personally I won't pay cash for 120k....

First of all, I don't really know all the details as I'm not in the banking line. But it would be safe to make a guess that there would be some sort of fees, charges, and/or penalties, as after all, it is an agreement that is about to be broken.

The bank expected to earn x amount of the loan, and giving a you a certain interest rate, and later on, you are trying to break their expected earnings without them putting up a fight?

I think the "Rule of 78" still applies to early settlement of a car loan. See this http://www.thestar.com.my/Opinion/Letters/...s-up-to-age-60/

I'm not sure whether the rule of 78 applies to loans above 5 years, but someone I knew was really cursing left and right when he blindly signed to the longest loan that was on offer, I think it was 9 years, and about 3-4 years later, tried to fully settle the loan.

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

add on....

Unless one has a specific reason to purposely decide to take a 5-year loan, and fully paid it off in 2 years, by all means go ahead.

If there is no specific reason, IMHO, the best is to work out how much we can afford to pay each month as installment, and use that to calculate how long it would take to pay off the loan amount. Then round it to the nearest month, not year.

Up to you... you asked, I replied. No need to make assumption what or how I do it.

Try to understand how the rule of 78 would applied to a car loan. House loan is different.

You still can, but car loan interest is not counted as same as house loan, so banks may impose some penalty charges or extra charges for too early settlement, as banks do not earn much in the early stage of the loan.
Somemore the total loan period interest (5years interest) is calculated already before derived the monthly repayment already.

It is not the like housing loan interest is counted based on reducing balance, whereby the more you pay or settle early, you save interest.

Borrow 100K car loan, 3% interest 5 year, 15K interest amount, equivalent to 3K per annum which spread out to 5 years.

1st year 3k interest out of 100K loan - 3%
2nd year 3K interest out of 80k outstanding loan amount - 3.75%
3rd year 3k out of 60K outstanding loan - 5%
4th year 3k out of 40K left - 7.5%

From here, you can see where bank makes the most profit.
If bank allows early settlement at 1st and 2nd year without any penalty or charges, they basically may earn little or close to nothing, if OPR rate is at 3.25%.

This post has been edited by cherroy: Jul 12 2015, 10:02 PM

Here's what I did:

Car price: 125k
Down payment: 30%
Loan: 70% @ 5 years.

I think this is a good formula to follow in assessing if you can afford the car.

Rule #1
Cash is king.

Rule #2
Cash is king.

Rule #3
Cash is still king.

Isn't it better to keep the king in YOUR POCKET? Of course take loan la! Now if you buy selected VW car, 0% interest!

Need to strike a balance between loan amount and loan tenure. It also depends on the interest rate, if it is 0% like VW car, of course it is no brainer to maximize the 0% interest and longer tenure, but if the interest is 3%, best to complete it in 2 to 3 years. if interest is 2.5, then 3~5 years, you can plot it in excel....

not in YOUR POCKET ... but in a bank for ~4% FD

however depending on interest rate.. if <1% for a new car , got for max tenure..

diao.. in YOUR POCKET means cash is at your disposal lah.

Cheapest car also RM30k, how to keep RM30k cash in your pocket la walao.

This post has been edited by Jason: Jul 16 2015, 06:32 PM

Just buy cash if u too rich. Did u know all supercars like lambo & ferari no loans from the bank?

All are between buyer and seller agreement. Unless you got a very very strong credit record. But most probably people use company name to buy. Just to run tax lol

30k just 3 stack of cash.. Not much actually.

i don't wear baggy pants, neither should you. and 3 stacks, you can't fold the notes. Won't fit my pants but whatever rocks your boat mate.

It's best to pay cash if you can.
I'd make an exception if the interest rate = 0% and if you are good at controlling your spending.

Just make sure that you have enough cash left after purchasing the car, at least 6-8 months of salary.

Assumption : You have extra spare cash enough to pay.
If no extra spare cash, why ask pay cash or take loan?

you want to know whether you use cash to pay car better or keep your cash to invest and take car loan better?

1)IF car loan interest 0% sure keep our own cash and take car loan.

Car loan interest even if only 3%, you think is lower than FD rate 4%, you will regret taking car loan and keep your spare cash in bank.

You lose, the longer the car loan duration the more you lose. That car interest 3% could be effectively 6%, and if 4% would be 7.9%.

So unless the spare cash you keep can guarantee return 10%, why take trouble take car loan, pay fees etc?

well said

Why does people from KWSP want to get themselves involved?

I think he meant, and I'm sure you know, it's IRB/LHDN instead of KWSP .

oh,...that is why i am wondering...
btw,..i guess it also depends on the amount of the cash paid for the car.
a friend of mine did not have income tax..just bought a RM 35k new car with cash 2 years ago..till now...no issue.

mark

well if one were to buy car in cash, I'm sure he/she have all the records /source of the $$

money given by father how? money given by grandma how? so easy escape

father / grandma give hard cash to buy car? no right, need to transfer from their account right.. that's your paper trail

This post has been edited by nexona88: Jul 20 2015, 05:26 PM

exactly, everything has a trail.

35k is a small figure, it possible not to have a trail. Ah kong ah mah their monies maybe kept under the pillow, you can't say they must keep money in the bank. Some more you can always say this relative give 10k, that relative borrow 10k. I think it cannot be proven wrong or cheating.

If one buys a car with cash for 150k or so, then it's different story.

This post has been edited by puchongite: Jul 20 2015, 08:13 PM

what if i sold my house and made 300k profit

and my wife buys a car for cash rm150K

my wife can show the money is from me as i old the house?
any way lhdn to disturb?

As long as your money sources can be explained, there is no worries. If you are asked to explain, just explain lar. No big deal.

found this while googling.......
Gifts
Gifts tax does not exist in Malaysia. Estate duties were repealed since 1stNovember 1991.
Gifts between spouses, parent and child, or grandparent are deemed to be zero gain on loss transaction.

http://hasil.family.my/investment-income-a...gains-taxation/

No inheritence and gift tax in Malaysia?, Tax free for assets transfer to child?
https://forum.lowyat.net/topic/1479601/all

This post has been edited by T231H: Jul 20 2015, 08:37 PM

Between close family member, there is no tax for asset transfer.

There is no inheritance tax in Malaysia.

eddyooi....here it is.....

The answer is no.
You just need to keep the document to show you made 300K, and the 150K came from the 300k.

IMHO, this is too simple a generalization. Any simple generalization will almost always have enough exceptions to the contrary.

A) Keeping cash can be simply viewed as holding on to the privilege of being able to survey options. (Maximizing liquidity, for short)
B) Any use of cash is a commitment to an option.

But what is the goal of keeping cash then? To Maximize Liquidity simply as an end to itself? Of course not, unless you are a daft money manager. I'm assuming then your generalization of "Cash is king" then is that it's best for Maximizing Net worth.

But is keeping cash always really the best for maximizing net worth? The answer is that it's entirely SITUATIONAL. And paying cash for a car (assessed against all other present and future options) is not necessarily a bad choice to make. Though I will leave out the details of when and why.

FYI, there is this thing called the cost of holding cash.

To the person that revived this old topic.
Someone earlier mentioned "Straight Line" interest and "Rule of 78".
1) Straight line method aka Flat Interest aka simple Interest is an interest payable calculation method <=== This is the what makes a personal loan or car loan more expensive than it seems. Beware.
2) Rule of 78 aka Sum of Digits method is a settlement calculation method <=== This is why it may make sense to settle your house loan early, but not necessarily your car loan or personal loan

This post has been edited by METALRAGE: Jul 21 2015, 11:09 PM

RM120k , down payment RM115k

5k more also cant pay? haha

No penalty needed since the penalty already charged on your car loan when you took it. That's why it is flat rate, that's the penalty.
I settle my 5 year loan on 13th month, savings are about rm3600 on interest based on rm6000 total interest. In some sense, I've paid 2 years interest.
Savings are there as long as we settle early.

Constructive and well said.

While Cash is King, who said kings don't fall? It's how you use it that makes all the difference.

The mechanics you explained are wrong.

But of course, reading from all your posturing on this forum in the past, you know everything already and have nothing more to learn.

U are better off utilizing the 35k by putting it into your main savings to finance another house.

true 2

rm115k, can pay down payment for small condo lo, better ROI right

but cannot take children to school, goto work or go for family outings with the condo right?
sometimes in life, not everything is about better ROI, right?

This post has been edited by MUM: Jul 25 2015, 10:25 AM