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. [attachmentid=5460221]

Maintenance is same for all 3 guys regardless of how they bought the car.

Just answer me this. You are cash rich, will you pay RM100,000 for a car in cash rather than take up a HP loan for it?

If you do not leverage yourself when HP % is lower than FD %, then you are not leveraging properly at all.

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.
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Seriously, though. Let's create a new thread in the finance forum and discuss there instead. This is going way off topic already.

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

At a glance. That is true.
When you calculate the effective interest rate, that is false. Which is what ongss was trying to illustrate.

The other guys are trying to explain to you.

In any case, I wouldn't do what ongss said either - buying cars with cash. I'd probably buy a house with the cash in hand (dp lah, take loan), and down the road refinance the house to buy the car.  Of course, each of us are different as we have our own approach.

Coming back to the TS, what have you decided on?

Seriously go and create. I'll participate from there.

If you read my post, I already mentioned "By the way, don't misunderstand I want to boast, for the past 15 years, I bought all my cars and properties in cash" in my previous post. I bought all my cars by cash - quite a number of them more than 200k.

You don't have to feel sorry for those trying to rectify you. I think you should feel sorry for youself. You keep mentioning compound interest, cash flow, leverage, etc. But, you don't understand why HP interest rate lower than FD interest rate. You don't even understand the meaning of leverage.

Drian, my whole point is to encourage taking HP loan to buy cars instead of dumping cash at one go. It is not to encourage taking 9 year loans. Let's just simplify it even more and talk about a ONE year HP loan shall we? Again, this is assuming we have cash and also ability to pay instalments.

RM100,000 car
RM10,000 D/P
RM90,000 Loan
2.8% HP interest
You end up paying RM102,520 for the car.

While you are paying for the instalments, you have the following in FD.
RM100,000 FD @ 4%

By the end of ONE year, you cash out your FD @ RM104,000.

RM104,000 - Rm102,520 = RM1,480
Your RM100,000 liquid cash made money for you. If you had bought the car in cash, the car does NOTHING for you.

My scenario of 9 years is to dramatise the effect, not to encourage it.

If i am cash rich and I want to buy a new BMW, and I want to change car after 3 years, I will take a 3 year HP Loan and place the same amount in FD for 3 years. OK? Remaining liquid cash can be used in other places.

Hi fellow bros, can I seek for some advise from you guys? I am a normal office worker, currently income 5k nett. My wife which is also an accountant income around 4k. Combine income 9k. Own a condo monthly installment 1500. Petrol cover by company RM600 every month.

Planning to buy a 2nd hand BMW F30 316i, price RM150k , downpayment 20k , loan 130k, tenure 9 years, installment every month 1400. No more warranty, with 30k left BSRI.

Please advise whether I should go for this 316i? Currently driving a vios. 5 years old car. Really fancy this car but worry about the maintenance cost. What do you guys think of it with me and my wife combine income? ( not plan to have child yet )

Thanks fellow bros. please advise.

Let me get this straight. You are quite cash rich.

You chose to dump liquid cash onto a depreciating item instead of investing it. And you are telling me I don't know what leverage means? OK.

I will not go for bmw though. Am looking for car at 100k or below. Any suggestions? Mazda 3 and golf tsi mk7 2nd hand are in my list. 😀

Drian, my whole point is to encourage taking HP loan to buy cars instead of dumping cash at one go. It is not to encourage taking 9 year loans. Let's just simplify it even more and talk about a ONE year HP loan shall we? Again, this is assuming we have cash and also ability to pay instalments.

RM100,000 car
RM10,000 D/P
RM90,000 Loan
2.8% HP interest
You end up paying RM102,520 for the car.

While you are paying for the instalments, you have the following in FD.
RM100,000 FD @ 4%

By the end of ONE year, you cash out your FD @ RM104,000.

RM104,000 - Rm102,520 = RM1,480
Your RM100,000 liquid cash made money for you. If you had bought the car in cash, the car does NOTHING for you.

My scenario of 9 years is to dramatise the effect, not to encourage it.

If i am cash rich and I want to buy a new BMW, and I want to change car after 3 years, I will take a 3 year HP Loan and place the same amount in FD for 3 years. OK? Remaining liquid cash can be used in other places.

Your example is artificial. First of all no bank will give you a one year H.P. loan at an interest rate of less than the F.D. rate. They are effectively paying more in interest to the depositor than they are earning from the borrower. The rate does vary with the loan tenure.

Secondly you also need to withdraw funds to pay monthly instalments. There is also a loss of interest withdrawing the funds.

Financial planning and investment are something more complicated than you thought. Read Drian's post. If you can't capture the concept of effective interest rate, you might have trouble to understand real return of investment.