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

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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

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

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

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

There is no inheritance tax in Malaysia.

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

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.

If you count like this, then it is financial ignorance already. No offence.

Banks won't loan out money at a interest rate lower than FD rate.
If so, banks are making a losing business already.
Banks are not "stupid" to do this,

Please read what is EIR for a 2.5% car loan.

Unless the money you retain now (loan instead pay in cash) can generate something more than the loan interest, the value become smaller or not issue is irrelevant actually, as putting in bank won't win against the loan interest, except for the purpose of cashflow then it is another story.

May be I should pinned this explanation, as this question has been popped up again and again.
Seems like many still do not understand what is flat interest rate of a term loan.

Flat interest term loan typically car loan, interest already counted before hand for the total tenure.
A 3% car loan interest :

Remember you won't able to win against Banks by taking loan to put in FD.
FD interest rate is the cost of bank funding, if banks do not impose loan interest higher than FD, then they are doing charity work already.

You have 100k FD now.
But you don't have 100K at year 2, year 3 already as you need to draw down your FD to pay your month installment.

So the FD interest of 20k for 5 years is wrong.

The one doesn't understand is you, not others.

Assuming 100k FD at 4%.
Interest that can generate for you with car monthly repayment 1875.

(as compared to pay off in cash)

1st year
second month, you left with 98,125 that can generate 4%
third month, left 96,250

Second year, you are left with
77,500 that can generate 4%.

In the final 5th year, the interest will be so little as you are left with 10K in the FD.

The further it goes, the less interest can be generated.
So you do not generate 4K per year from the 100K.
In fact, the final 5th, the interest can be generated is less than Rm400.

Then you are not comparing apple with apple.

If you don't need to pay off the car installment through other source of fund, the money can generate you FD interest, which you convenience forget.

The comparison is you have 100K now, which is "cheaper".
Use the 100K to pay off, or keep on 100K, get a loan, then pay off slowly using the 100k.

He forget the salary if saved (if don't need to pay off the installment), the salary money generates the 4% interest as well, which is not taking into calculation.

So the calculation is still wrong.

RM1875 increment per month x 4% compounded over the 5 years, it is a big sum of money as well, which one is losing it without noticing.
You need to add back into it, to have a correct comparison.

Don't have payslip, never mind, if those money bank in is your monthly income, then you always got declare it annually with LHDN one.
So you got a file to show.

We have plenty of website that can count the EIR. Just key in the number, you get the EIR number
2.5% 5 year, based on the website, the EIR is 4.73%.
http://loanstreet.com.my/calculator/flat-t...rest-calculator

So you need to find an investment that can generate more than 4.73% in order to "win" against the loan.