+1. that kinda of high hope and good feeling about future back in 199x no more.... but future's looking dim.

IF FREE munnee take lar - eg. HSBC $12K 0% for 12 months, MBB Balance Transfer 0% & $0 Fees for 12 months, PBB for 6 months, etc (assuming one already have the cash to payback the credit card).
Then,
turn around & fund flexi-mortgage OR money market fund 3.5%pa+/- and slowly payback the above
eg for HSBC's $12K 0% for 12 months - can get $196+/- pa
https://docs.google.com/spreadsheets/d/1row...dit?usp=sharing

Someone wrote: borrow first if i dont need it (and roll it) BUT dont borrow if i need (coz banks wont give) - tu budak dengan dua bapak, 1 "rich" & 1 "poor". One of the very few actionable stuff he wrote heheh

No absolute right / wrong ya - it heavily depends on individual's capability to manage finances. Like fire, leverage can be great tool OR destructive.

I think we must help them a bit, the yourger ones today,... start them off with stronger footing, eductaion, some $$$ in the coffers, international exposure,.... don't know-lar,.. all these are just theories, I have just moved my children out of this ctry only,... still don't know how they will fare later,....

I saw many of my friends' children after graduating,... still returned to this 'bad' place and joined the family business, worked in Maybank selling Credit Cards and Housing Loans, some jobless sitting at home,... really don't know-lar,...

I wished to hand down my investment-knowledge and my 'platforms' around the world to my children and they said it's a lot of headache,.... what ?????

Of course la. As I said long time ago, never hand them ready money as they will never appreciate it. Hand them ready money, be prepared to watch them spend it all away. Why? They never learn the value of money.

Make them work for it. Then only they will appreciate it and want it. If they never tasted hard life, they will think ah, for what want to learn so much/manage this and that when I have ready money waiting for me. Make them work for it and you will see the difference.

That's normal human nature. That's why there is a Chinese saying, money never last more than 3 generations.

This post has been edited by Ramjade: Nov 3 2017, 01:50 PM

Thought I wanted to hand to you earlier,...

Wanna get some advice from the gurus here.

Have a friend who still has a car loan balance of RM57500. the interest rate was 3.15% when she bought the car, and she took a loan of RM64000. She has paid 14 months installment hitherto.

She has asked if she should settle the car loan.

Using this link
http://www.autoworld.com.my/tools/car-loan...ment-calculator

I calculated she'll get a rebate of RM5700 if she settles it now.

Using the flat to effective interest rate calculator, the rate is 5.91%.

She has a chunk of money sitting in a flexi account offesting her 4.15% mortgage, which she can use to settle the car loan in full after the hire purchase interest rebate

Q: Will she be economically better off settling the car loan?

can I calculate like this?
if used the money to pay car loan = saved RM 5700

if used that money to put in the flexi account will get 4.15%pa......
you need to calculate the amount she would earn by the same duration of the balance of the car loan duration.

which one more untung?

Stick to flexi acc

1. Settle car loan
if the chunk of money in flexi account is unusable for any other investment. vehicle loan has already charged a minimum of interest even settle earlier.

2. leave sum of flexi for future investment

Honestly this question has gotten me confused, so I don't really know. Simple compound interest calculator shows a gain of 9k after 4 years, which is more than 5700. But I cannot reconcile this with the fact that the effective interest rate for HP is higher than Flexi loan, but lower "gains".

Perhaps it's the difference between interest saved (Flexi) Vs interest paid (HP)

Was hoping for some finance whiz who could work out this problem for me haha

Car loan for rm64000
Interest rate is 315%
total number of Months instalment paid = 14 month

What is the total number of months more to paid?
What is the monthly instalment to be paid?

Btw....i read b4 that "they" only pay one just some token of appreciation for early repayment.....there is really not much of financial benefits for early repayment if one have a flexi loan to trade....but then hv to consider the balance of loan duration to go too......for car loan interest amount had already been factored in the repayment amount......vs the amount one can untung from the time in the flexi loan
Well...just guessing.....non financial mind person

"Q: Will she be economically better off settling the car loan?"

She will still be the same, with same net asset and liability. Neither poorer nor richer.

Yes, simple math can shows which loan is more costlier. (First, convert the flat rate interest in the HP to reducing balance rate as in the house loan - for apple to apple comparison.)

But one should do all these maths before getting the loans.

After getting the loans, then it is a whole set of different calculations because the loans are agreements or contracts. There are penalties and extra fees to pay in breaking them.

While a housing loan will show the outstanding amount if it is pay in a lump sum, a car loan do not. In paying off a car loan in a lump sum, the rule of 78 applies. Or we can also use an online calculator as you indicated in above post.

A better question to ask is: "Is she willing to use the lump sum to settle the car loan or keep it at her disposal for any urgent needs?"

Having the lump sum at her disposal could matters more than the chump change saved in settling the car loan.

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

Actually, quite a few of the queries in this forum is similar in nature.

All wanting to know how much would be saved if converting one type of loan to another, or how much would the gains be if money is taken out of flexi house loan to invest.

IMHO, this is like putting the cart before the horse.

It seems like people are taking the loans first, then think about it. When talking to the bank loan officer or agent, it seems that the objective is to get as much as possible, and the longest tenure as possible.

Common sense already told us that loans comes together with interest. The highest loan amount at the longest tenure possible will incur the highest cost of interest. And this interest will be paid back in every monthly installments.

If we view loans as a necessary expenditure as like other things we have to spend, then we should be careful in not having too much loans. Just like we don't buy things more than we need, since it is wasteful.

So, how much to borrow without being too much?

The simple answer: how much can you afford to pay back every month without fail and yet it is the highest amount you can bear to do so?

Ask yourself this: The highest amount you can bear to pay back every month in the monthly installments.

It means that you are doing all you can within your best abilities to pay back the loan soonest possible.

Which in turns mean the correct balance between the loan amount and the loan tenure that you should have. Which in turns mean the lowest possible cost of interest.

If you are already having a loan with the lowest possible cost of interest, then you are already spending and using your money in the most possible efficiency manner you can possible do.

At the end of the day, out of your salary, you will be using part of the money on food, sundries, housing loan, car loan, etc etc. And every ringgit is used as efficiently as possible.

If there is any balance or savings left, then you are free to think about how to use it wisely. You don't have to re-think whether it is better or not to settle this loan or that loan first, or whether or not, it would be better to invest it or use it to settle any loan.

Always keep it simple, and think of loans as a necessary expenditure. Think of it as part of a financial plan too, so that you can stick to the agreement/contract with the bank.

Lastly, don't break the agreement... even if you think you can get another better offer from another bank. Don't.

Don't overestimate yourself that you can outsmart the bank with hundreds of well-paid financial professionals under its employment.

The loan is for a total of 60 months. monthly installment is roughly 1200-1300 IIRC.


I have to thank you for your detailed reply.

However I'm approaching this problem as a mathematical problem instead of a philosophical one

I just feel very irritated and dumb not being able to work out the answer to this question in pure numbers sense

I did the maths for you.

Might not be accurate but it's should be around there.

 SUM_OF_DIGIT_METHOD.pdf ( 126.6k ) Number of downloads: 55


Sorry didn't saw the initial post.

No early settlement - RM50,835.64 @ Flexi Loan 4.15% for 46 months = RM8,087.10 interest saved.



This post has been edited by liqti7: Nov 7 2017, 11:22 AM

Maths is putting numbers into logic and rationality. If you can reason out the problem, then it is already partially solved on its own.

You already got the answer on your own. Either using the online calculator or the excel worksheet shown in above post, it is about $51,000 to settle the car loan. And the savings in interest cost is about $5700 or $5954 from either calculations.

This $51k is taken from the flexi loan, which if it were to remain there, it would earn interest of 4.15%.
If it remains there for the other 46 months, it will get a return of 51,000 x 4.15% x 46 / 12 = 8113.25

So, you save $5700 (or $5954), but lose $8113.

Why you would lose more than you saved? Because the cost of interest in using the loan facility is not in proportion to its usage. You are paying much more interest at the beginning.

(It is like travelling on a toll highway that charges you a very high fee per mile for the first several miles and gradually reduces the fee as you travel further.)

Actually the math don't end here. You can continue on further with the numbers. Since the car loan is fully settled, and no longer need to pay the car installment every month, $1235 is freed and can be placed into the flexi account to earn interest.

If this is the case, then the interest earned would work out to be about $4865.

So, the final figure: 5700 - 8113 + 4865 = 2452.

You gained $2452, over a period of nearly 4 years.

Chump change when compare to the total salary earned in 4 years.

This post has been edited by j.passing.by: Nov 7 2017, 01:02 PM

Yes yes thank you all. After analysing the posts above, and further thought on my own, I can finally reconcile the calculations now. thanks!

Can I sign up for this handing down of investment-knowledge? Will happily share my life story (in private) lol

Thank you for taking your precious time for your guided calculation and detailed explanation. From number's perspective, it seems that we have gained a $2452 over a period of 4 years, but the stress of not having the financial flexibility after a lump sum of $51,000 was gone from the bank account at the beginning is rather huge. Although the freed up $1235 every month will ease the stress, but it takes a lot of discipline not to spend that extra money on lifestyle upgrade expenses instead of putting them back into flexi account.

The important thing to keep in mind is the difference between a flat rate loan (like a car loan) and a balance reducing loan (as in a housing loan). The other matters in the posts in the previous page are surplus what-if scenarios.

The what-if scenarios as like case studies in business classes are, sometimes, not grounded in practicality. Often, the info is not complete. Hence, there is no singular right answer.

How did the 51k comes about? Was it easily saved, or did id take a number of years? Is 51k a lot of money in respective to the annual salary?

Why is there 51k in the house loan? Was the flexi loan purposely lengthen to have a lower monthly installment amount so that the borrower can now deceived himself/herself that he/she has extra 'savings'?

(Which would inadvertently increases the cost of interest, if there is no extra 'savings'.)

If the tenure is purposely lengthen to have a lower monthly installment with an objective of having extra cash to seize any investment opportunity if and when it arises, why is there a sum of money slowly building up? No opportunities or the right investment to invest into? Just wishful thoughts, at the expense of incurring more cost of interest?

All these questions, only we our ownselves can answer. No right or wrong answer. This is personal cash-money financial management forum. Not a maths class!

To each his own. Or as we said it locally, 'your money, your funeral'.