Mrpoppyplants has demonstrated a flaw in his calculations- he assumed that the tread starter has enough money to offset the full amount loaned.

This is a very good point though bro.. I could have better cash flow if I were to take the 9 years loan.. By the way, what's your vote / opinion then? Should I go for the continental car?

9 year loan is only for supper reliable cars. Not on a BMW

The simple calculation was only to show how wrong people are about hire purchase loans when they are at current low interest rates % unlike 10-20 years back when they were about 5-6%. It was only to show how you can take a hire purchase loan and use existing cash to earn.

I think that cars for some people are like hobbies, almost can be compared with vacations/travelling given the joy it brings to some people. If you asked around if it is okay to spend RM1,500 every month on travelling and/or doing something you enjoy, I am almost certain that you will get thumbs up from almost everyone. Like I said before, everyone is different, if you did your calculations and feel that you won't struggle month to month, buy whatever that makes you happy.

After taken all the advise and thoughts from fellow bros, i take in consideration that I might could afford to pay the installment every month for a bmw, but it will be very tight for me to fork out the maintenance fees. Therefore, I might not go for the bmw. Anyway, I am still opted to change a new car, but this time budget will be at RM100k or below price cars. Neither a new or used car is ok for me. Any suggestions ?

Firstly, before we talk about a hire purchase of 100,000 loan with 2.8% interests, think about the common logic: if the banks pay the depositors 3.5% but lend out the money at 2.8%, how they are going to make profit? Banks need to pay their employees, maintain their offices, buy computer systems and of course dividends to the shareholders.

Now, look at the following simple calculation for a loan of 100,000 for 9 years with 2.8% interest (usually for new car), monthly instalment = RM1,159.26.

For the first year, total instalment paid = 1159.26x12 = 13911.12. Interest is 2800, principal paid back = 11111.12. Remaining principal = 88,888.88
For the 2nd year, interest is 2800 for the remaining 88,888.88, effective interest rate is 3.2%.

After 7 years, total instalment paid = 1159.26x84 =97377.84, Total interest paid = 2800x7= 19600. Principal paid back = 97377.84 - 19600 = 77,777.84. Remaining principal = 22,222.16. For the 8th year, effective interest rate = 2800/22,222.16 =12.6%

The above calculations are simplified. Bank are not stupid. They make money with long term strategy - though not as easy as long time ago.

If you sell your car after three years, remember, you are only entitled for Statutory Rebate on Terms Charges (Hire Purchase Act 1967):

http://www.akpk.org.my/learning/articles-a...e-purchase-loan

Loan is a leverage and double-bladed sword. It helps rich men who use it to acquire assets that appreciate. For the asset that depreciate, loan is basically helping the nation to generate the economy growth.

This post has been edited by ongss: Dec 6 2015, 07:35 PM

One question, I thought for hire purchase loan, once you sign the paper, the interest rate is fixed for the duration of the loan? Correct me if I'm wrong.

Seriously the method you are using to compare with fd is inaccurate. At the 9th year you would have paid off rm89000 worth of principal which means you have only 11k debt only. However the bank still charges you the interest rate of a 100k loan eventhough you've paid off 89k at the 9th year, making it an effective interest rate of roughly 23%.

There is a term called effective interest rate and this value is usually 1.7-1.9X the published fix interest rate.
So for a 2.9% interest for 9 years the effective interest rate is 5.2% , so you wont make a profit putting the cash in FD.

This post has been edited by Drian: Dec 6 2015, 10:55 PM

Dude, I wrote that to explain why one should NOT buy a car with cash, especially if it is more than RM100,000.

You, however, are showing a scenario where you take a 9 year loan, and calculating only up to the beginning of 8th year. After which you state the obvious that selling your car after 3 years is stupid. None of which is what I wrote about at all.

What exactly are you trying to show here? That you can count?

Are you denying the fact that after 9 years of totally paying off the hire purchase loan instalments, it will still amount to being less than actually dumping in RM100,000 in FD for 9 years with compounded interest earnings? This will always end up with the same results whether it is 3 year HP Loan vs 3 year FD or whichever because FD % is currently HIGHER than Hire Purchase %. Because if you ARE denying it, then you just contradicted your last paragraph.

This post has been edited by MrPoppyplants: Dec 7 2015, 01:22 AM

Oh boy, you have no idea about compounded interest don't you? Try your math again.

Anyways, this is not the finance forum. If you guys think my calculations are wrong.. Well, ok, I'll leave it at that. Go ahead and correct it to your heart's content. This is going off topic already. Ciao.

I just use the loan calculator from www.mudah.my or www.mazda.com.my

The interest rate is flat using fixed interest rate, I personally dont think Mudah is wrong. The calculation is as follows:-

Loan Amount (RM109,000 x 3.00% interest rate) = RM3270 x (loan years) 9 = RM29,430.00

Monthly payment = RM1,281.71 x 108 (12months x 9 years) = RM138,424.68

RM138,424.68 - RM29,430.00 = RM109,000.00 ( Principal)

Based on the loan calculators provided by Mudah or Mazda, we can see clearly the interest charge is 3% per year.

Conclusion, get the maximum loan and put your money into bank is the best.

If you got 100k cash in hand, 4% interest rate per year (by right is compounded interest) = RM4,000 x 9 years = RM36,000.00

Again, all these geniuses are assuming that the TS has $109K to offset the total amount of the loan in the first place...

just saying. go test drive even the 316i or 318i, once you feel the difference these FWD are crap for you.

I don't care if i am broke paying loan, the RWD is too sweet to pass up. YOLO

Yeah, yeah, you only live once but make sure you don't screw up the only life you have. If you can't pay and the bank repossess the car you'll be sued for the difference between loan balance and market price. If more than RM30K they will make you a bankrupt. You'll be blacklisted from taking any loan from any bank and even if you settle everything your bad payment record means you need a guarantor for future loan. So don't play-play with the bank just for a little fun with cars.

I wrote to explain effective interest rate and why the hire-purchase rate 2.8% is merely a myth to attract people to spend. By the way, don't misunderstand I want to boast, for the past 15 years, I bought all my cars and properties in cash.

I give a comparison, let say Mr A borrow 100k from the bank via Hire Purchase of 2.8% fixed per annum and 9 years instalments, the monthly instalment is 1159.26.

Mr B is a depositor and put 1159.26 per month into his bank account for 9 years. For the first year, assuming banks only accept 10k as minimum amount for FD deposit, Mr B can't put into FD to get 3.5% and hence only earn 0.5% per annum. After 12 months, Mr B get 13930 (12x1159.26+0.5% interest-monthly calculated) for his one year saving and transfer to FD account in order to earn 3.5% per annum. Again, beginning of third year, Mr B transfer his 2nd year saving of 13930 into FD again and continues to do so for his saving. See the attached diagram for the calculation.

Mr C put a 100k into FD.

After 9 years, these are the results:

- Mr A got car worth 100k 9 years ago, he pays 125200 for that 100k 'value'.
- Mr B get a total savings of 144433. He earns 19233 interest for saving 125200 over 9 years.
- Mr C's 100k become 136289. It may seem lower than Mr B but Mr A's principal is 100k while Mr B's principal is 125200.
- Assuming Mr A used that 100k to buy a car and his car worth 30k after 9 years. The estimated cost of ownership is 144433 - 30000 = 114433. Add up maintenance and etc, the final figure is more.

I don't think I am contradicting myself, you don't understand the meaning of leverage. Loan is a leverage if it helps people to gain more than what they can afford. Loan is not a leverage if it helps people to enjoy more than what they can afford at present level.

It's you who got it all wrong and you have no idea what you're talking about.
The compounded interest for 4% for a 100k saving is 100k *1.04^9 approx 142K.
The total interest paid for the car loan@2.9% is 26k so total is 126k so you thought that you're making a profit.

So let me ask you something, where is the money coming from to pay the instalment for the loan?
Obviously from the cash on hand. So you have to take out RM14000 every year from your 100k savings to pay for the loan. The first year alone you can only take interest from 86k NOT 100k . For the 2nd year you have to take out another 14k , so your interest is based on 72k + previous year interest. By 3rd year onwards, the interest that you paid on your car loan will be more than your interest gain on your 4% savings.

The reason his calculation went wrong because he thought that he can compound the interest from the 100k@4% without paying for the car loan.

I feel sorry for you.

Read this boy.

"Dude, I wrote that to explain why one should NOT buy a car with cash, especially if it is more than RM100,000. "

If one has the cash to buy a car, one should NOT do it because NOW, FD % is HIGHER than HP %. Understand?

It took you 3 replies to finally get the calculations right. And even that, you are still not understanding compounded interest. So, you are also still wrong about one thing, if I had the cash in cash, I WILL make a profit even after having to pay instalments every month up to the day I clear my loan.