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.

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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.

The banks are regulated; they don't "blind blind whack me rm1100".

This is how 'rule of 78' is calculated in charging the total interest in an early settlement:
5 years loan or 60 months.
Total summation of 60 months: 60+59+58+57+56+55+...+6+5+4+3+2+1 = 1830

Which means if settlement in 60th month, total interest to pay = 1830/1830 x RM6000
Which means if settlement in 5th month, total interest to pay = (60+59+58+57+56)/1830 x RM6000

Which means if settlement in 13th month, total interest to pay = (60+59+...+49+48)/1830 x RM6000 = 702/1830 x RM6000 or about RM2301.64

You have already paid about RM1200 in interests in the previous 12 months, so it is RM2301.64 less 1200.

BTW. You managed to cough out 48 months of installments... congrats

BTW. You saves nothing. It is like going to a sale. You think you saves 30-70% when you bought something you don't really need. You might as well saves 100% by not buying it.

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.

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.

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.

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...

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.

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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...

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I got the last post in this page.


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

If the answer is that simple, then we can conduct a poll and follow the most popular choice.

"Save interest, save loan processing fee."
If you read my previous post entirely, I've given a reason why I rather took the trouble to take a loan and pay the interests and other fees. It maybe an unfounded fear or reason, but it is a legit reason in my situation.

There is another secondary reason as well, as you mentioned 'extra surplus money'. But how do we know for sure it won't "be needed for the next 5 years or so"?

"Because you want to manage the cashflow..."
Then there is no 'extra surplus cash' to speak of in the first place. Several millions of cash in a company is not the same as another company; as it could be part of the operating cashflow.

It is his money, so who to say that another option would be better for him? Or in this case that's the individual company's money, so who are we to say or define how much is enough cash, or how much is excess cash that will be sitting ideally?

Unless we strike lottery, and suddenly comes in 'extra surplus money', then the answer is simple. Pay in cash.

But if the 'extra surplus money' is from regular means and build up in a regular fashion, the answer is that not obvious.

here is a quick answer: see this online flat rate calculator http://loanstreet.com.my/calculator/flat-t...rest-calculator

Put in 2.5% and any number of years you like... the effective rate is more than 4%.

Flat rate: This is how the interest is calculated in car and personal loans.

Effective rate: This is how the interest is calculated in fixed deposit and housing loans.

Get it? The rates are NOT the same. To compare them, first, you need to convert the flat rate to effective rate.

aiyoh, why so mean to me? Did I step on your tail? Read the reply again, do you really understand the difference between a Flat rate and Effective interest? As said, the 2.5% flat rate converted to effective rate is 4.73%. That's a quick way of comparing the loan of 4.73% against the FD of 4.0%.

Show you calculator, show you the apple to apple comparison also you don't try to understand... and want to be rude!

Never mind the rudeness, let's get on with some hard numbers... (This is a open forum, hope it will helps other readers.)

100k flat rate of 2.5%, 5 years loan, installment = 1875/month
End value of 100k in a 4.0% FD, for 5 years, with compounded interest = 121,665


There are 2 events: a) put the 100k into FD and take the loan. b) take out the 100k and pay for the car.
To compare the 2 different events, we focus on a single object that will be affected by the 2 separate events.
The object to observe is the end value of the FD at the end of 5 years.

a) put the 100k into FD and take the loan (and pay the installment every month).
As we already knew, the end value of 100k in a 4.0% FD, for 5 years, with compounded interest is RM121,665

[Formula: P*(1 + r)^t ]

b) take out the 100k and pay for the car.
So we are not taking any loan. But to compare apple to apple, and to observe what is the end value of the FD, we have to put the monthly installment into the FD, every month.

End value of the FD at the end of year-5, with RM1875 at the end of every month for 60 months = RM124,310

[Formula: P[(1+i)^n - 1] / i ]

Conclusion: (B) take out the 100k and pay for the car in one shot gives higher return.