Spot on! Unfortunately most ppl are still confused with these numbers and having the misconceptions that putting money in fd is having higher interest than hire purchase loan interest...

very smart calculation.

why dont we fast foward 1 year?

2007?

camry = rm100k ++
sonata = rm58k ++

good job in taking 2006 version, because new version came out on 2007, and the older version will have significantly lower price

Do excuse my inability to catch your point via the long paragraphs. Perhaps you can educate us and show some examples thru simples maths as I would love to learn more.

Lets take a $100,000 car.
Case 1 : Pay $50K cash and loan $50k @ 2.8% for a tenure or 5 yrs.
Case 2 : Pay $0 cash, loan $100k @ 2.8% for a tenure of 5 yrs, AND put in $50k in FD @ 3.0% on a monthly renewable basis for 5 yrs.

So, I'm wondering, which case result in higher savings again?

Also do keep in mind cash in FD is much more versatile, you have an emergency.. out comes the cash, compared to selling your car to get $.

This post has been edited by MeToo: Jan 28 2012, 01:08 PM

in this scenario looks like u haf 50k in hand, for a a car that cost 100K.

case 1 better. case 2 is obviously the lousier option, coz ur 2.8% car loan interest is on the basis of 100K. ur FD 3% interest is base on 50k. plus u'll nid to withdraw to service the loan, so ur 50k is getting lesser along the way.

i wud put lesser down payment, n do something else with the money. if make money, then do early settlement. admin charges not a lot....

I'm sure in both his case, the 50k are spare cash and could be locked in FD for the next 5 years. no one mentioned about using the 50k for the monthly installments. As long as the salary can support the monthly commitment, putting as little dp as possible is the best option.

yes, and the fact that inflation rate is much higher than 3%,makes the" as little dp as possible make sense."

well either way lesser downpay wud make more sense i guess. but not the mininum i suppose, nid to balance a bit.... as much as u can afford to pay installment for a 5 (max 7) years tenurr i guess

There is no simple maths in calculating the effective interest rate for higher purchase loan but a fixed formula which you can find easily on the internet. Most people will not be able to understand how the formula works but in layman terms is calculating the interest rate you would have paid if the car loan is on a reducing balance basis on fixed monthly repayment amount and fixed loan tenure.

On the above scenario, case 1 will give more savings. The effective interest rate for 50k loan , repay in 5 years at norminal interest rate of 2.8% is 5.41 percent. Unless your FD can give you more than 5.41% per annum , you are losing on the interest.

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Added on January 28, 2012, 5:57 pmUnless you can make your spare cash earn more than the effective interest rate of the loan, you are on the losing end as far as interest in concerned. Therefore, FD rate at 3 or 4 percent does not give you saving on the interest.

Don't put another variable into the comparison as i could also buy the car with 100k cash without any loan and use the portion or salary which need to service the car loan if i had taken the loan to put back in FD and earn interest in the next 5 years. The result will be i can save more than if i had taken a 5 years 50k loan at 2.8% norminal rate p.a.

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Added on January 28, 2012, 5:59 pmLesser dp is the best coz most people will not be able to make use of the spare cash to earn more than the loan EIR

This post has been edited by sochaiapk: Jan 28 2012, 06:00 PM

You don't need a math or calculator, already known case 1 will have better saving.

Car term loan works like this.
if you loan 100k, at interest rate 2.8% 5 years, they use 100K x 2.8% x 5 years then divided into 60 months as your month payment.

And this 2.8% is not an effective interest rate.
When you pay monthly payment time, your loan amount already gone down, but the interest rate is still counted using the original 100k (flat across in the first place), so the further future payment on interest charge is actually way more expensive than the first one.

For eg. if using FD method to count, when you loan left 20k, it should be 20k x 2.8% (if 2.8% is real interest rate), but we know term loan calculation doesn't work like that.

FD is more versatile, but you need it to pay down the month car payment.
Yes, in term of emergence use, it is good, more liquidity, however, this unrelated to saving part of story, but more a cash management issue.

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Added on January 28, 2012, 6:09 pm(simple illustration for understanding, and it is not correct, as it need monthly payment reduction on principal to have the accurate figure)
100k x 2.8% = 2.8k interest is paid every year with 5 year loan.

1st year, loan 100k, pay 2.8k interest = 2.8% effective interest rate
2nd year, loan left 80k, still pay 2.8k = it is no longer a 2.8%, but 3.5% already
3rd year, loan left 60k, still pay 2.8k = 4.6%
4th year, loan left 40k. still pay 2.8k = 7%.

The FD 3% only save you tiny bit in the first years, but losing big and bigger as the year progress.


This post has been edited by cherroy: Jan 28 2012, 06:09 PM

The manual might look like this.

There will be a lock button to unlock the 'R' latch, so you can't accidentally shift into reverse.

i though hire purchases for cars always have % calculated based on the initial loan amount amortized, and not base on the reducing balance?

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Added on January 28, 2012, 8:22 pmlooks plasticky....

This post has been edited by tunasandwich: Jan 28 2012, 08:22 PM

The so called "effective interest" doesn't exist, and to calculate based on the remaining principle amount to refresh the interest rate doesn't make sense as well.... so let's forget about all the rates and percentage, and see the real life calculation below:

Loan $50,000. On 2.8% loan interest will end up 1,400 x 5 = $7000 interest paid for the entire tenure.

Now, put those $50,000 into FD, and remember compounded interest.... at 3.0% pa
the total amount of interest earned at the end of 5 years
= $7963.70

It doesn't take 5+% of FD interest to reach the same amount of interest paid for car loan. In fact much lesser due to compounded calculation.

I don't think you are right, but I could be wrong too?


edit: i think we are both looking at different directions. You are assuming that the amount in FD is to be gradually withdraw to service the monthly installment. right? My assumption is those are spare cash, and being spare is the only reason why people would scratch their head and consider all these in the first place.

This post has been edited by harpyboy: Jan 28 2012, 09:53 PM

Image from Australia

same quality as saga blm???
http://www.google.com/imgres?hl=en&biw=160...fo2vDFCA&zoom=1

had a second and third look.... still plasticky

The EIR does exist, and it makes sense all together.

You cannot take one apple and compare to another orange. Simultaneously take loan 50K while 50K FD still intact.
The situation of apple vs apple is
You have 50k now, you have the choice paying the car/less loan or full loan while 50K in FD.
You cannot use FD as spare cash and 50K intact to entire 5 years to compare, you need money to service the month loan repayment.

You need to compare using the FD to pay the amount as apple vs apple.

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Added on January 29, 2012, 12:36 amBank is not stupid, they are getting better deal or gain a profit from the term loan 2.8% compared to 3% FD given to you.

The apple vs apple or so called EIR is the sole 50K ended at where. You cannot take in extra money (money servicing the month loan) + 50K in FD intact for 5 years.

This post has been edited by cherroy: Jan 29 2012, 12:38 AM

just my POV:

case A: DP 50k, and with spare 50k for FD.
looks ideal, from paper u get 3% pa from FD, but lets do not forget in real life the inflation is also 3% (2011).
so basically you are earning nothing from FD, but paying extra 2.8% interest in 5yr installment.
total saving = -$7000

case B: cash purchase 100k, no installment no FD.
case close on the spot.
total saving = $0

it just make no sense to FD rather than paying full.
btw, assuming 50k spare cash for FD is nonsense, i could have only 20k in FD and some1 else might have 2mil in FD. its totally random, not logical for comparison.

correct me if wrong.

This post has been edited by yamato: Jan 29 2012, 01:40 AM

You fail to take into account the savings per month when invested in FD for the person who paid in full.
The amount he saves annually from car payments and placed into FD will definitely nett him more $$$.
An amount of 11400 saved from monthly payments for 1 year and placed into FD with compounded 3% would already give him 1800 nett at the end of 5 years.

Wheres the 7963.70 from your example needs to deduct the 7K interest, so only giving 963.7 nett after 5 years.

Hmm... the way you put it.. seems the I pay more for the HP then what I get in return for my money in FD.

However, doign a quick calculation, the end result doesnt agree with your example strangely.

Lets take a $100,000 car.
Case 1 : Pay $50K cash and loan $50k @ 2.8% for a tenure or 5 yrs.
Case 2 : Pay $0 cash, loan $100k @ 2.8% for a tenure of 5 yrs, AND put in $50k in FD @ 3.0% on a monthly renewable basis for 5 yrs. (FD for 60 months is 3.8%)


Maths :
Case 1 : Total interest paid $7,000
Case 2 : Total interest paid $14,000 - $8000 (FD interest) = $6,000
Case 3 : Using 60 months FD rates $14,000 - $10,000 (FD interest) = $4,000

So.... I'm still confused about the supposed EIR that will make my loan interest more then my FD interest. I think alot of people dont care what is the EIR etc... we care more on what is the actual cost in Ringgit. The EIR could be 500% for all we care as long as we end up saving some $.

Oh and lets not talk about taking $$ out of FD for monthly repayment, the FD $$ will not be touched, I can handle the monthly repayment/maintenance etc for all the above case.

Another guy pointed out the Inflation reducing the "value" of the FD, it doesnt matter cause inflation would have reduced the "value" of yoru RM100k loan as well. So inflation is not a factor in this situation.

This post has been edited by MeToo: Jan 29 2012, 03:52 AM

Ceh, like that the comparison will never end lol. I can also say why not compare the XV40 against the YF?

Sonata YF std specs:
http://www.mudah.my/Hyundai+Sonata+2+0+AUTO-13337785.htm RM111,000
How to confirm that it's std specs? Check out the keys in the ignition below the steering wheel. High spec 2.0 has push start

Camry XV40 2.0E:
http://www.mudah.my/Toyota+Camry+2+0+Vvti+10-13226922.htm RM122,000
Confirm std specs: Check for body coloured door handles and rear number plate garnish (G spec has chrome)

Both 2010 models:
Sonata YF RM136,000 less RM111,000 = RM24,888

Camry XV40 RM145,000 less RM122,000 = RM23,000

This post has been edited by gregy: Jan 29 2012, 05:24 AM