May 7 2015, 04:56 PM
QUOTE(Ramjade @ May 7 2015, 04:05 PM)
But what if say a person have rm50k cash, put fd at 4.2%/year. Fd will not be touch. Fd Interest remains the same every year.
He then take rm50k car loan at 3%/year for 5 year from another bank. He is going to pay the loan using deduction from monthly salary.
At the end of 5 years, he paid finish his loan. He withdraw fd with the interest, will he make a loss or make a profit?
Sorry. I am still blur
1. There is a difference between interest on a loan calculated on a flat-rate basis and the interest rate of a fixed deposit - which is also known as the 'effective interest rate'.He then take rm50k car loan at 3%/year for 5 year from another bank. He is going to pay the loan using deduction from monthly salary.
At the end of 5 years, he paid finish his loan. He withdraw fd with the interest, will he make a loss or make a profit?
Sorry. I am still blur
To compare apple to apple, the flat-rate interest must be converted first... using online calculators... http://loanstreet.com.my/calculator/flat-t...rest-calculator.
The 3% flat-rate interest over 5 years, is actually 5.64%.
So the short answer is: Since the interest rate of the loan (5.64%) is higher than the fd (4.2%), it is more 'profitable' to pay cash than taking a loan and put the money in fd.
2. Why is there a difference? Just imagine that the fixed deposit is a loan to the bank. With this fd loan, the bank has the full usage of the 50k over 5 years... while in the car loan, we don't have the full usage of the 50k over 5 years, since we are paying installments every month.
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