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.
Car loan rate vs Fixed.deposit, Compare
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 Jun 22 2018, 10:45 AM
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#1
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Senior Member
9,706 posts Joined: Feb 2005 From: Why U wana know? Status: Meditating™ 
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Jun 22 2018, 03:59 PM
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#2
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QUOTE(aspartame @ Jun 22 2018, 03:48 PM) 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 |
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Jun 22 2018, 04:35 PM
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#3
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9,706 posts Joined: Feb 2005 From: Why U wana know? Status: Meditating™
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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? |
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Jun 22 2018, 05:47 PM
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#4
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QUOTE(cherroy @ Jun 22 2018, 05:16 PM) The main mistake many did, is they use FULL FD amount to compared. Eg. 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.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. 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. QUOTE(fun_feng @ Jun 22 2018, 05:17 PM) Dude you totally miss out the monthly payment part... How can you compare like this???? 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?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 Same like, people that smoke and doesn't smoke. We don't see people that smoke saves more money? QUOTE(aspartame @ Jun 22 2018, 05:22 PM) 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? 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. |
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