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%

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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.