Apr 10 2012, 05:20 PM
You are right on the interest diff is minimal but you miss out one point here.
Based on your calculation, you have RM15k for a RM115k car. After 3 years if you plan to sell your car.
If you took a 5 year loan - you get back RM31,885.25
If you took a 7 year loan - you get back RM13,386.20
If you took a 9 year loan - you get back RM3,105.40
Am sure after 3 years, you'll plan to have a better car which will cost more than RM115k, or even same value. But you won't have RM15k d/p as you first bought it 3 years ago. If you take a shorter loan tenure, see how much you get back in cash to upgrade or even for other usage
Moral of the story is, if you can't afford the more expensive car, get one which you can afford and not regret it later. It's never an advantage in taking a longer tenure for car loan.
QUOTE(gregy @ Apr 9 2012, 06:56 PM)
For car loans you will find that the first half of the tenure, you are paying more interest than principle. For example, in a 5 yr loan, the first three years whatever you are paying to the bank, a larger portion of it goes to interest while a smaller portion goes to principle reduction. After three years if you intend to sell your car, you will find that the interest rebate is minimal.
Let's take a few examples, calculated courtesy of autoworld
Basis for calculation:
Car price: RM115,000
Loan amount: RM100,000
Interest: 2.5%
Tenure: 5, 7 and 9 years
Car sold after 3yrs for RM75,000
5 yr loan: (RM100,000 x 1.125) / 60 = RM1,875/mth.
After 3 yrs: Amt paid (36 x RM1,875) = RM67,500
Interest rebate: RM1,885.25
Total owing to finance: RM43,114.75
Based on the above,
Total amount spent on "renting" the car for 3 yrs is:
(D/p + Amt paid for 3 yrs) less (Sold price - Total owing to finance)
(RM15,000 + RM67,500) less (RM75,000 - RM43,114.75)
= RM82,500 - RM31,885.25
= RM50,614.75
= RM1,406/mth cost of ownership
7 yr loan: (RM100,000 x 1.175) / 84 = RM1,398.80/mth.
After 3 yrs: Amt paid (36 x RM1,398.80) = RM50,356.80
Interest rebate: RM5,529.40
Total owing to finance: RM61,613.80
Based on the above,
Total amount spent on "renting" the car for 3 yrs is:
(D/p + Amt paid for 3 yrs) less (Sold price - Total owing to finance)
(RM15,000 + RM50,356.80) less (RM75,000 - RM61,613.80)
= RM65,356.80 - RM13,386.20
= RM51,970.60
= RM1,443.65/mth cost of ownership
9 yr loan: (RM100,000 x 1.225) / 108 = RM1,134.30/mth.
After 3 yrs: Amt paid (36 x RM1,134.30) = RM40,834.80
Interest rebate: RM9,770.65
Total owing to finance: RM71,894.60
Based on the above,
Total amount spent on "renting" the car for 3 yrs is:
(D/p + Amt paid for 3 yrs) less (Sold price - Total owing to finance)
(RM15,000 + RM40,834.80) less (RM75,000 - RM71,894.60)
= RM55,834.80 - RM3,105.40
= RM52,729.40
= RM1,464.70/mth cost of ownership
So, to sum it all up:
The monthly actual cost difference between a 5, 7 and 9 yr loan, based on a car that is sold after 3 yrs:
5yrs: RM1,405/mth
7yrs: RM1,443.65/mth
9yrs: RM1,464.70/mth
and, total interest paid after 3yrs:
5yrs: RM10,614.75 out of RM12,500
7yrs: RM11,970.60 out of RM17,500
9yrs: RM12,729.35 out of RM22,500
So, in reality, there's not much that separates between 5, 7 and 9 year loans due to the current low interest rates. And, if you have better use for your cash for investments or whatever, it makes sense to take 9 yr loans.
Let's take a few examples, calculated courtesy of autoworld
Basis for calculation:
Car price: RM115,000
Loan amount: RM100,000
Interest: 2.5%
Tenure: 5, 7 and 9 years
Car sold after 3yrs for RM75,000
5 yr loan: (RM100,000 x 1.125) / 60 = RM1,875/mth.
After 3 yrs: Amt paid (36 x RM1,875) = RM67,500
Interest rebate: RM1,885.25
Total owing to finance: RM43,114.75
Based on the above,
Total amount spent on "renting" the car for 3 yrs is:
(D/p + Amt paid for 3 yrs) less (Sold price - Total owing to finance)
(RM15,000 + RM67,500) less (RM75,000 - RM43,114.75)
= RM82,500 - RM31,885.25
= RM50,614.75
= RM1,406/mth cost of ownership
7 yr loan: (RM100,000 x 1.175) / 84 = RM1,398.80/mth.
After 3 yrs: Amt paid (36 x RM1,398.80) = RM50,356.80
Interest rebate: RM5,529.40
Total owing to finance: RM61,613.80
Based on the above,
Total amount spent on "renting" the car for 3 yrs is:
(D/p + Amt paid for 3 yrs) less (Sold price - Total owing to finance)
(RM15,000 + RM50,356.80) less (RM75,000 - RM61,613.80)
= RM65,356.80 - RM13,386.20
= RM51,970.60
= RM1,443.65/mth cost of ownership
9 yr loan: (RM100,000 x 1.225) / 108 = RM1,134.30/mth.
After 3 yrs: Amt paid (36 x RM1,134.30) = RM40,834.80
Interest rebate: RM9,770.65
Total owing to finance: RM71,894.60
Based on the above,
Total amount spent on "renting" the car for 3 yrs is:
(D/p + Amt paid for 3 yrs) less (Sold price - Total owing to finance)
(RM15,000 + RM40,834.80) less (RM75,000 - RM71,894.60)
= RM55,834.80 - RM3,105.40
= RM52,729.40
= RM1,464.70/mth cost of ownership
So, to sum it all up:
The monthly actual cost difference between a 5, 7 and 9 yr loan, based on a car that is sold after 3 yrs:
5yrs: RM1,405/mth
7yrs: RM1,443.65/mth
9yrs: RM1,464.70/mth
and, total interest paid after 3yrs:
5yrs: RM10,614.75 out of RM12,500
7yrs: RM11,970.60 out of RM17,500
9yrs: RM12,729.35 out of RM22,500
So, in reality, there's not much that separates between 5, 7 and 9 year loans due to the current low interest rates. And, if you have better use for your cash for investments or whatever, it makes sense to take 9 yr loans.
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