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 Lumpsum Payment on Car or House Loan

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TSEddyHyip
post Jul 30 2015, 12:14 PM, updated 9y ago

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Given that I have a sum of money, should I use the money to pay off my remaining car loan or to pay into the house loan.
The car loan interest rate is 2.5% pa and the house loan is 4.25% pa.

I understand that the house loan interest is already an effective rate i.e. 4.25% pa charge on the remaining principal, but the car loan interest is based on the loan amount undertaken (not based on remaining principal), right?

Where should I put the money to gain savings?

Thank you
buraqdunia
post Jul 30 2015, 12:18 PM

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FD, stock exchange, commodity to be precise. Just to name a few and it well-known info. More, u have pay for it.
aeiou228
post Jul 30 2015, 12:20 PM

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QUOTE(EddyHyip @ Jul 30 2015, 12:14 PM)
Given that I have a sum of money, should I use the money to pay off my remaining car loan or to pay into the house loan.
The car loan interest rate is 2.5% pa and the house loan is 4.25% pa.

I understand that the house loan interest is already an effective rate i.e. 4.25% pa charge on the remaining principal, but the car loan interest is based on the loan amount undertaken (not based on remaining principal), right?

Where should I put the money to gain savings?

Thank you
*
2.5% car loan should be higher than 4.25% housing loan by approximately 0.5 %.
TSEddyHyip
post Jul 30 2015, 12:36 PM

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I saw in my car loan interest rate... 4.95% is that the effective interest rate?
TSEddyHyip
post Jul 30 2015, 12:37 PM

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QUOTE(buraqdunia @ Jul 30 2015, 12:18 PM)
FD, stock exchange, commodity to be precise. Just to name a few and it well-known info. More, u have pay for it.
*
Maybe I need to be precise, should I put my money in car loan or house loan.
Car loan so far i paid for 1 year instalment already, the total is 7 years.
SUSsupersound
post Jul 30 2015, 12:44 PM

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Some prefer to have loan to make investment, that is if economy are good, once you lost your job, you will be in trouble. Another main reason why more people are sued bankruptcies nowadays.
As for your question, it depends how long are both of the loan and the amount you need to pay monthly.
For me, I'll settle the shorter term loan first as once that loan are settled, you will have extra money already. But if you settle partly on that longer period loan, you still have to serve 2 loans.
AngelTee84
post Jul 30 2015, 12:44 PM

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car loan interest already counted in your monthly

while house loan have flexi loan ? no ?
aeiou228
post Jul 30 2015, 01:07 PM

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QUOTE(EddyHyip @ Jul 30 2015, 12:37 PM)
Maybe I need to be precise, should I put my money in car loan or house loan.
Car loan so far i paid for 1 year instalment already, the total is 7 years.
*
You already mentioned your car loan is 4.95% effective, then the obvious choice would be the car loan. 13 months installments out of 7 years car loan still worth to settle albeit some "penalty" due to rule of 78 early settlement calculation.

Before you settle your car loan, how much return your cash is giving you at the moment ? 4.2% from the FD, 6.X% from the ASNB or reit investment or 8.x% from ASB etc etc ?
TSEddyHyip
post Jul 30 2015, 01:13 PM

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QUOTE(EddyHyip @ Jul 30 2015, 12:36 PM)
I saw in my car loan interest rate... 4.95% is that the effective interest rate?
*
If someone can advise me, does the car loan effective interest rate reduces over the years.
Today the amount of interest i paid against the loan amount of 4.95%. Next year, would it be lower because the bank will reduce the margin of monthly instalment to be paid as interest?
In totality, I will pay in average 2.5% pa but year by year it could start with 4.95, year 2 maybe 4.5% and so on?

I so far paid for 1 year loan d, is it still worth it to settle?

total interest charge for the loan is 17k. So far i paid total interest of 4.9k already! That is like almost 30% of the total interest to be paid for 7 years loan... all within 1 year of loan service.
cherroy
post Jul 30 2015, 01:18 PM

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QUOTE(EddyHyip @ Jul 30 2015, 01:13 PM)
If someone can advise me, does the car loan effective interest rate reduces over the years.
Today the amount of interest i paid against the loan amount of 4.95%. Next year, would it be lower because the bank will reduce the margin of monthly instalment to be paid as interest?
In totality, I will pay in average 2.5% pa but year by year it could start with 4.95, year 2 maybe 4.5% and so on?

I so far paid for 1 year loan d, is it still worth it to settle?

total interest charge for the loan is 17k. So far i paid total interest of 4.9k already! That is like almost 30% of the total interest to be paid for 7 years loan... all within 1 year of loan service.
*
Someone is giving ill advice already.

Car loan interest counted all the way for the whole tenure already at day one of the loan started.

Car loan is not a reducing balance loan, so your interest is fixed throughout the tenure.
If the EIR is 4.95%, then it means every year you pay 4.95% which if fixed already.


cdspins
post Jul 30 2015, 01:25 PM

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To me unless have lump sump enough to pay up the car loan fully, else just put the money in fixd or other investment until enough is accumulated.
earl-ku
post Jul 30 2015, 04:13 PM

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QUOTE(cherroy @ Jul 30 2015, 01:18 PM)
Someone is giving ill advice already.

Car loan interest counted all the way for the whole tenure already at day one of the loan started.

Car loan is not a reducing balance loan, so your interest is fixed throughout the tenure.
If the EIR is 4.95%, then it means every year you pay 4.95% which if fixed already.
*
yeah even though the house loan is higher, but interest is based on remaining balance, and the interest for the car, is calculated and factored into the repayment period for the entire duration, not much difference unless u wanna settle it right there and then

take the money and put them into your housing loan ...thats for sure!
adele123
post Jul 30 2015, 04:50 PM

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QUOTE(EddyHyip @ Jul 30 2015, 12:14 PM)
Given that I have a sum of money, should I use the money to pay off my remaining car loan or to pay into the house loan.
The car loan interest rate is 2.5% pa and the house loan is 4.25% pa.

I understand that the house loan interest is already an effective rate i.e. 4.25% pa charge on the remaining principal, but the car loan interest is based on the loan amount undertaken (not based on remaining principal), right?

Where should I put the money to gain savings?

Thank you
*
maybe the link below can help.

http://loanstreet.com.my/calculator/car-an...ment-calculator

my educated guess is, even settling the car loan earlier, the savings from interest rebate (since i found out it is calculated by rule of 78) probably does not exceed the savings in house loan.

even though effective interest rate of car loan is higher. i guess the maths matters in this case.
SUSsupersound
post Jul 31 2015, 09:18 AM

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QUOTE(adele123 @ Jul 30 2015, 04:50 PM)
maybe the link below can help.

http://loanstreet.com.my/calculator/car-an...ment-calculator

my educated guess is, even settling the car loan earlier, the savings from interest rebate (since i found out it is calculated by rule of 78) probably does not exceed the savings in house loan.

even though effective interest rate of car loan is higher. i guess the maths matters in this case.
*
Assuming my monthly salary is rm3000 where rm1000 is for housing loan, rm600 for car loan.
The sum I got only able to pay off car loan.
So in this case, paying off car loan first would be a better option. Since after this, I will have extra rm600 that can used to pay housing loan also thumbup.gif
aeiou228
post Jul 31 2015, 02:10 PM

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QUOTE(supersound @ Jul 31 2015, 09:18 AM)
Assuming my monthly salary is rm3000 where rm1000 is for housing loan, rm600 for car loan.
The sum I got only able to pay off car loan.
So in this case, paying off car loan first would be a better option. Since after this, I will have extra rm600 that can used to pay housing loan also thumbup.gif
*
Not necessary a good idea. You need to check the effective rate of your car loan and how long the car loan has already in progress. If you are settling the car loan at 3/4 of your loan tenure, then you are making a costly mistake.
One also need to consider the current % return of the cash in hand. ASNB, REITs yields better than 2.5% car loan any time.
SUSsupersound
post Jul 31 2015, 02:14 PM

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QUOTE(aeiou228 @ Jul 31 2015, 02:10 PM)
Not necessary a good idea. You need to check the effective rate of your car loan and how long the car loan has already in progress. If you are settling the car loan at 3/4 of your loan tenure, then you are making a costly mistake.
One also need to consider the current % return of the cash in hand. ASNB, REITs yields better than 2.5% car loan any time.
*
So are you trying to tell that, REIT forever can make money whistling.gif
If you are saying yes, then you are sinkalan's sinkalan.
aeiou228
post Jul 31 2015, 02:33 PM

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QUOTE(supersound @ Jul 31 2015, 02:14 PM)
So are you trying to tell that, REIT forever can make money whistling.gif
If you are saying yes, then you are sinkalan's sinkalan.
*
Let's not derail to REITs, I was merely quoting few examples to remind you that you need to consider the effective rate of your HP loan, the timing of the settlement and the current yield of the cash in hand before settling the car loan. I hope you can take opinion with open mind. sweat.gif

This post has been edited by aeiou228: Jul 31 2015, 02:35 PM
SUSsupersound
post Jul 31 2015, 02:40 PM

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QUOTE(aeiou228 @ Jul 31 2015, 02:33 PM)
Let's not derail to REITs, I was merely quoting few examples to remind you that you need to consider the effective rate of your HP loan, the timing of the settlement and the current yield of the cash in hand before settling the car loan. I hope you can take opinion with open mind.  sweat.gif
*
Proper way on financial management is, to have least loan as possible.
HP loan's interest rate every month need to pay, investment only pay out once a year, if they are really making money.
With the extra money, can always dump to the next loan, which will reduce the interest also.
Is you that want to derail the thread, so I just reply you on the cons on your idea.
aeiou228
post Jul 31 2015, 03:40 PM

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QUOTE(supersound @ Jul 31 2015, 02:40 PM)
Proper way on financial management is, to have least loan as possible.
HP loan's interest rate every month need to pay, investment only pay out once a year, if they are really making money.
With the extra money, can always dump to the next loan, which will reduce the interest also.
Is you that want to derail the thread, so I just reply you on the cons on your idea.
*
Those who have loans do not mean their financial management is improper. Perhaps the loans help them to expand their business and general far greater income to them.

Like I said you need to check the effective rate and effective yield of both HP loan and investment, if the effective rate of the HP loan is far lower than the effective yield of your investment return, "then every month needs to pay" is still a WISE move.




Neo Light
post Aug 1 2015, 01:04 AM

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QUOTE(aeiou228 @ Jul 30 2015, 12:20 PM)
2.5% car loan should be higher than 4.25% housing loan by approximately 0.5 %.
*
How you calculate that?

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