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!

Which is wrong?

Anybody here mind to share that 2 scenarios calculation / formula?

See fun feng answer. The car loan yield 5.57% is higher than FD.

Always use effective rate to compare, not flat rate.

Car loan/term loan use flat rate interest to quote and calculate, it is not an effective/real rate (EIR) to start with.
eg.

100K 5 years 3%.
Total interest would be 15K, means 3K each year.

The problem is not the 1st year, but later year.
After paying off for 4 years, you left with outstanding of principal balance of 20K,
But interest still 3K pa.

3K/20K = 15% <---- see where bank makes the most money from.

One is paying 15% interest rate without knowing...

EIR is the figure the average out (as first year it is really 3%) and real interest rate one is paying.

The calculation I did in my previous post, shows exactly how much interest is paid to the bank yearly.

If you wanna believe bank take interest evenly every year then be my guest.

I have done early settlement before so I’m sure it’s quite accurate.

Cheers.

To understand easier,
imagine

3% FD vs 3% P2P investment

P2P has a higher EIR, therefore bigger amount, compared to FD

Can't understand man...

Me too

Conclusion

If FD and Car Loan rate same

Use loan for the car and keep the cash inside the FD

Often if buy new car, the Loan Interest Rate is lower than FD rate. Hence, read back the sentence above.

Hence, this is the conclusion when the blind leads the blind. Always remember that banks must earn higher than they pay. Hence, car loan effective rate is higher than FD.

Do you maths and prove me wrong

+1
post# 24 has the maths for those that needs it....

else google has many too

Read the thread...read what Cherroy posted...just apply the conversion template in Loan street ....converting 3% to effective rate will get u about 5.57%? So, 5.57% is higher than FD rate .

This is actually the accurate answer. EFFECTIVE RATE is the one we should look at. Not the flat rate.

i calculated TS's 3% HP rate is equivalent to 5.64% EIR for a 5 year tenure at 50k loan amount

Many people are delusional and self absorbed. Just because they manage to create a table to prove their point means they r 100% absolutely right. They never think that they get the ingredients wrong and hence, the end product is wrong 😅

+1.

If DP can gives more than personal loan/car loan...then bank rugi liao. Bank will never ever do rugi business. If things are too good to be true, usually it's not true

This post has been edited by Duckies: Jun 22 2018, 04:17 PM

Correct la.. bank's business is cranking % and u think they are fools meh? They take your FD and loan you cheaper? Lolz...

The table shows how much interest we paid to the bank yearly.

We are paying more interest to them in the early cycle of the loan and pay lesser in the later stage. That's why if one, want to do an early settlement of the HP loan will be surprise to see there's still so much principal owing to the bank despite already paying half the loan tenure.

You are only able to earn money only if the FD is place there for the same tenure as the HP loan without uplifting it.

Simply said, the bank earn your money NOW while you have to wait 7 years later to earns yours.

This post has been edited by rapple: Jun 22 2018, 04:38 PM

RM100k Loan, 3% P.A, 5 Years

Interest RM3k P.A, over 5 Years is RM15k

Effective Interest Rate is 15%

---------------------------------

RM100k cash put in FD, 4% P.A, 5 Years

Y1 Interest RM4,000 - Assuming you do not touch it since assume you buy car and cannot touch it. Compound Interest
Y2 Interest RM4,160
Y3 Interest RM4,326.40
Y4 Interest RM4,499.46
Y5 Interest RM4,679.43

Total Interest RM21,665.29

Effective Interest Rate 21.67%

---------------------------------

Nowadays FD is easily 4% and above with 1 Year Tenure and could be more if you have RM100k.


So? Post #24 only shows EFFECTIVE INTEREST RATE for the Flat Interest Rate (P.A). Question is why buy cash when you can loan?

Because they don’t like paying interest to the banks.

If one is so piss off by bank earning your money, then don’t put money in the banks. They are using your money to loan to us to generate more income.

Be like Najib, keep in the house.

The main mistake many did, is they use FULL FD amount to compared. Eg.

100K 4% full FD 5 years = 20K interest earned
vs
100K 3.5% term/car loan 5 years = Interest paid 17,500

It seems taking loan can get extra 2,500.
But, it is wrong to start with, because one needs to pay off the term loan every month.

The apple vs apple comparison, you have 100K now, instead paying off cash, or taking loan 100K and slowly pay off the loan using the FD (not from other source, like your wages)
So FD amount needs to be drawn down every month to repay the loan.
You don't have 100K FD for the second months, and left less than 20K for the 4th years already, hence the interest earned calculation is flaw to start with.

The above calculation is only right, if one doesn't need to pay off the term loan every month, and only need to pay once in full after 5 years.

Dude you totally miss out the monthly payment part... How can you compare like this????

Now let's assume your example of 100k 5 year loan. Loan:3%, FD:4%


Scenario 1 (Buying car with loan and putting 100k into FD)
Cost (Money you fork out): 100k in FD + 115k in repaying loan (1916 monthly installment)
So total cost is 215k
At the end of 5 years you will have a car (fully paid) and RM121,665.29 (FD) in bank


Scenario 2 (Buying car with cash, and use the monthly installment for FD)
Cost: 100k in car + 115k in FD (Putting the monthly installment in FD instead)
So total cost is 215k (see this is same as Scenario 1, and must be the same for a apple to apple comparison)

The calculation of a monthly saving 1916 to FD 4% can be found here https://financialmentor.com/calculator/comp...rest-calculator
The amount is 127,452

At the end of 5 years you will have a car (fully paid) and RM127,452 (FD) in bank

It is funny how the world operate right? What seems very simple and obvious is not so leh. The devil is in the details. Are u sure u have covered all angles?

Yes, you "could" be right if they intend to use the Initial Capital in FD to pay off the Monthly Installment because the interest will be reduced.

My angle of view is, the money should not be spent in FD and used to earn interest while using own monthly salary to pay for the loan installment. Refer to following quoted post which illustrate a better comparison.


You are right especially on the Secnario 2, if without commitments, how disciplined are the people able to save the monthly installment amount as savings which eventually will yield more?

Same like, people that smoke and doesn't smoke. We don't see people that smoke saves more money?


I believe the point you are highlighting refers to the monthly repayment. I had made my explanation for the way I am going to manage it if it were me.

an old thread of similar queries abt the "perceived" benefits of loan vs cash in FD.....
from post 135 of this old thread.....
then following that post,...came many replies that corrected that perceived assumption.....
https://forum.lowyat.net/topic/2036496/all


I liked these poss (attached)t.....so easy to digest.....

just hope my uncle had read these before taking up the car loan......he said the salesman said better take loan MORE untung with FD in bank.....

(he told me during the CNY gathering)

This post has been edited by T231H: Jun 22 2018, 05:55 PM


Attached thumbnail(s)

Bingo!

Finance is about cold hard truths and apple and apple comparison. Why bring saving/spending habits into an objective calculation?

See how the bank earn money or not?

rapple chicaman

1. Believe in yourself and your own calculation.

2. When face with complicated things, and you don't understand, don't force yourself. Because life is too short. Be happy with what you understand and believe

3. Do believe that there are free lunch in this world, just like those money scheme and people who willingly give you money for free.

4. Money is not difficult to make afterall. Banks you get car loan from and put your FD into definitely are people who will let you make your money. They are nice people.

5. Those who don't understand your calculation in this thread, which you even showed them calculation table and make it so simple to help them understand, are all sohai. Hopeless bo thak chek people. Give your mercy to these low IQ people and leave them alone to continue to be sohai. You are at least 2 level above them so don't waste your time to convince them because they won't understand your level of intellectual

It's good to have clever people like you two in this forum so the readers won't get fooled by those sohai....

Scenario 1 ~ Without factoring his active income and taking the 5 year loan, the FD draw down to pay the monthly loan it's not going to be enough and it will be in negative of RM5,362.

Scenario 2 ~ Without factoring his active income again by paying cash 100k. You have a fully paid car but no FD interest received because you are assume to have no active income and to make this a fair comparison.

And how many of you would buy a car without an active income.

The actual interest paid to the bank for that year will be my effective rate and this is the only thing I need to know. By knowing this, I could finalized my client accounts and subsequently ask them to pay my fees to cover my cost of interest.

Cheers.

You are right, i count it wrongly, most likely messed up somewhere in the excel.