You cannot compare based on the total amount paid against the total amount collectable from FD.

If the car loan allows you to pay one lump sum at the end of 5 year tenure, 40250 then your calculation will be valid.

The thing is that you are required to pay each month, right from the beginning of the loan tenure. And every month you deposited the money inside, they never give you any interest and neither they offset the loan interest from it ( to be exact, they only offset it in the future ).

This post has been edited by puchongite: May 7 2015, 01:25 PM

Here is my calculation on buying with Cash or take loan

But am using 50k example for easy calculation

Cash scenario
50k nett nett for the car

Now is comparison between putting 50k into FD at 4% per annum and taking a loan 2.9% per annum for 7 years

If you take 2.9% for 7 years based on 50k loan amount (Let's say it is 100% financing)

RM 1450 interest per year x 7 years = 10150

Total principal + interest = 60150

Total monthly commitment is 716.07
Total payable month = 7 x 12 = 84 months

Now if that 50k is slotted into FD with 4% per annum, and withdrawing 716.07 a mth for installment

Using Time Value Money
Present Value = 50,000 ( Means deposit 50k into FD)
Payment = -716.07 (Withdrawing every month for installment
Future Value = 0 (Complete withdrawal to pay hire purchase)

Annual Rate = 4% (FD 4% interest payment to you)

Mode = Beginning (Hire purchase pay in the start of the month, so withdraw on starting of the month)

In the end, calculate Period that can withdraw until Future Value = 0 (Means complete withdraw)
Period = 79.31, or 79 months

So.. means if u take loan, and money put FD.. u are still losing out 5 mths of installment
5 months x RM 716.07 = rm 3580.35

So u still pay extra RM 3580


However, this is based on theory and calculation.
Real situation, bank doesn't allow partial withdrawal of FD of RM 716.07, and many more kuci kuci twist and turn..

Do be informed that if you take hire purchase, need to sign facilities agreement, stamping and preparation also cost approx 1k.


Just my 2 cents calculation to justify cash purchase and putting in FD and take loan.

*** I hope my TVM calculation input data is right ** Hahaha.. cuz i am only 4/5 bucket water

This post has been edited by Bonescythe: May 7 2015, 01:07 PM

yeah , u got in now. that's what effective[U] % incurred. while many still not getting it all

i had the same problem understanding it few years back.

This post has been edited by vincentwmh: May 7 2015, 01:53 PM

The calculation is totally wrong.

You do not have FD of 35000 for 5 years, the amount of FD is shrinking each month as you need to draw down the FD to pay the car loan.

The EIR already tell the story the exact calculation to compare with FD.

This post has been edited by cherroy: May 7 2015, 02:20 PM

yes, pay for car loan every month for 5 years and only can get the FD maturity amount after 5 years. But the monthly payment can be paid using own income first and then after 5 years, getting back from FD maturity amount, earn some profit. Isn't that how it supposed to be? correct me if im wrong.

If divide 5 years interest rate for car loan and FD divided to monthly without calculating in the principal:

Car loan interest: 40250-35000=5250/60 months=RM87.50
FD interest: 41562.50-35000=6562.5/60months=RM109.375


i still dont get it lol...blur guy here. care to pm me and enlighten me a lil bit.

Your basis is ***WRONG*** because you have to take into consideration of ***TIME***.

Money paid earlier cannot be directly compared to money to be paid in future.

If you pay 500 every month and then you sum it up as 6000 after 12 month is a big mistake already.

This post has been edited by puchongite: May 7 2015, 02:46 PM

It is very easy to understand. Loan interest are charged upfront on beginning while FD interest you only get it on the end of tenure.
That's why the consumer body keep on asking people to beware of this.

This.

So many ppl out there have no idea how FD vs HP works.

If you are using own income to pay instead of FD, then it is not a direct comparison already.

The comparison is you have FD now to pay it by cash and no loan, vs taking loan and let the FD earn interest.

If you taking in own income to pay off the car loan repayment, you bring in addition money already, no longer 35000, it is more than that.
Mind that if your income is not being used to pay off the loan, the money will generate interest as well.

The last sentence is what he is missing.

woah....too much to take in lol.. is like everything is affecting one another if i put income variable. gonna research more. thanks sifus!

so my concept of calculation betul ma?

Still a lot of people don't know how to count EIR.

Banks won't do losing business, whatever loan out there, its interest rate or real interest rate or EIR surely will higher than what bank pay for FD.

You never win against bank by borrow money from them, and put in FD.

Banks take in FD to borrow you money, they won't let loan interest lower than FD, this is the most basic of doing business.
Banks earn profit through the difference between FD rate and loan interest rate.

That is why, borrow at EIR 5.45% from a commercial bank i.e. @2.9% flat rate, then dump into ASB/ASW or whatchamacallit, get 7%... still profit from the arbitrage lor...

Eh sai boh?

Xuzen

Yup, the right way to count the FD interest earned is the FD amount keep on shrinking each month.

But I preferred to "scare off" people by showing the the last year real interest rate on HP.

100K 3% 5 years.

Each year interest is 3K

1st year 3K/100K = 3%
2nd year 3K /80k = 3.75% (already pay off 20K through monthly repayment)
3rd year 3K/60K = 5%
4th year 3k/40k = 7.5%
5th year 3K/20K = 15%.

See where bank earns the most profit?

That's why they can give lower rate if the tenure is longer.
Bank actually like borrower to drag even longer, they can earn even more.

Please check with the Bank if you have loan a car before.

2.9% is flat rate per year. just make it simple. dont use EIR.

FD also by 4% per year. so.. is just as simple as 4% vs 2.9%. just that u cannot take out FD anytime to pay car loan.

that's why. best way to do is. using ur flexi house loan. you can take out your money any time. and the rate you can save in housing is at least 4.2%

I am quite amused that every sifu will come out his way of calculation.

No wonder "3rd edition" gets more confused when there are more explanations.

Bank will use EIR for their back end calculation. that's for them to distribute the payment proportionately.

to customer. is as simple as 2.9% per annual.

so after you pay for one year, following year 2.9% is based on outstanding or total loan amount?

nvm i tell you, it is based on total loan amount. Meaning it is not 2.9%.

Read more below to understand why it is not 2.9%

Now i have no more doubt why banks are making so much money

This post has been edited by bearbear: May 7 2015, 03:27 PM

Hmm.. nice easy to understand diagram and figure..