Let said, I have saving of 50k and my car is 50k.

Car loan rate 3%, Fixed deposit rate 4%.
So, I better get a car loan of 50k rather than pay cash?

OR the car loan rate is different calculations?

Car loan:

Monthly payment = ((Rate x Loan Amount) + Loan Amount)/(12 x How many year)

It is just flat rate.

Car loan better the interest don't stack up. One time interest charge. FD you can stack up the interest yearly.

Car loan interest is flat rate, where as FD is compound interest. FD Wins.

I would choose put in FD not only for interest but also it's liquidity, I can use it in case emergency or invest into better return tools like stocks or businesses when the time is right.

Definitely pay cash for your car. Imagine no payment in your next 4-5 years, and i believed you can just rebuild 50k back sooner than you think, it's psychology win-win. Imagine there are better opportunity in the future and you are not bound to these debt.

This post has been edited by cheefai7: Jun 20 2018, 09:10 AM

If the outlay of 50k will compromise your liquidity, meaning you are not able to afford a car now. Better return tools in stocks and business with debt laden in car loan are just self illusion.

This post has been edited by cheefai7: Jun 20 2018, 09:15 AM

Like that how the bank make money oh? They pay u FD interest and earn lower interest from car loan?

Because bank uses rule of 78, we pay a large portion of the interest during the early loan cycle.

Total FD interest received (assume is 4%) will be more than the total interest paid (3%) but it will only realized towards the end of the loan cycle because of the above.

Example: 3% FD vs 3% Car Loan


This post has been edited by rapple: Jun 20 2018, 11:12 AM

Bank not only has few customers what

Sure there're many people can afford to loan a car, but inside their bank account / FD don't even have 20k savings.

You sure have give a deeper thought on it, that we are all deceived with the % vs %, but if look at MBB, CIMB, PBB building all big and shinny. Don't think we can outsmart the banks.


Affordability for buying car now is considered affordability to pay the installment of loans.

Car loan uses something called Flat Interest Rate, you can convert it to Effective Interest Rate(something similar to FD) using some online calculator . https://loanstreet.com.my/calculator/flat-t...rest-calculator

3% flat rate for 7 years is about 5.57% effective interest rate.

In summary,
Scenario 1
if you take RM50,000 car loan for 7 years and dont touch the FD, you will have RM 65,796.59 in FD after 7 years compounding.

Scenario 2
if you pay with FD money and put the monthly installment you have to pay every month into FD, you will have RM 62,989.57 68,942.99 in FD after 7 years.

This post has been edited by weichong: Jun 25 2018, 09:42 AM

For Scenario 1, have it factored in Financing cost? Second, it does cost emotionally that you are indebted to the lender and ought to serve the installment for 7 years.

For Scenario 2, you have a freedom of choice and you owned the car.

How you get RM62989.57 in scenario 2?? I got RM69895.20 through https://financialmentor.com/calculator/comp...rest-calculator

You already calculated the loan as 5.57 effective interest rate, which means the loan cost more than the earnings through FD..

Therefore of course it is better to pay the car using cash

scenario 1 is take loan

scenario 2 is use FD money, then monthly installment put back into FD

The yearly effective interest rate based on 3% FD and 3% car loan interest.

*To break even the finance cost for a 7 year loan, one will need at least 6.5 years of time in FD placement.




This post has been edited by rapple: Jun 20 2018, 02:00 PM

Yes I understand.
I'm just saying your calculation for scenario 2 is wrong.. It should have more money than scenario 1

https://financialmentor.com/calculator/comp...rest-calculator


Sorry I don't understand..
We are using 50k principal and 4%FD vs 3%loan example

The point is effective interest rate will go lower every year and not just 5.57% as you mention earlier.

I used 3% on both FD interest and car loan interest to prevent people asking "what if FD rate doesn't give 4% anymore".

Whether is 10k or 50k as principal, the compounding interest shows a positive net return over the 7 years loan.

*To break even the finance cost for a 7 year loan, one will need at least 6.5 years of time in FD placement.

Bro ah, your formula correct but your calculation wrong ah. If effective rate of car loan is 5.57%, u will get more in Scenario 2 lo.

You got it right sir. They all confused already .. lol...

Bro ah, forget about your own complicated calculation cos u got it all wrong!