Hi, I took an MBSB personal loan for 20 years when i was in my early 20s.

I was in a desperate situation at the time and needed to settle some family debts.

I didnt get good financial advice at the time and suffice to say I do regret taking the loan now.

The monthly repayment is in my budget and is something I can afford.

However, I am curious whether early settlement would have any benefits beyond freeing up my monthly expenses earlier?

Would it reduce my interest amount?

your personal duration is 20 yrs,
how many years had you serviced the loan?

can try read these links,...
about should you pay off HP loan earlier and don't forget to read the Rule 78 links too
https://www.google.com/search?q=benefits+of...sclient=gws-wiz

This post has been edited by MUM: Nov 18 2021, 09:51 PM

Ask the bank for a settlement sum and compare it to the balance of the total sum you need to pay off the loan ... your answer is there

This post has been edited by mini orchard: Nov 18 2021, 09:53 PM

I've serviced it for about 9 years now

that's the plan, but just want to know before i expand the mental energy to call tomorrow whether settlement amount would actually be lower

It will be less for sure, just that whether the figure is within your expectation for early settlement.

one of the advantages of early settlement of loan is it can increase your credit score for future loan.

if you settle early, most probably you will get some discount....(like what i read from postings about early settlement of car loan) just some,...very little to some people.
you need to get the discount value to determine its worthiness of early settlement,...

since you had been paying your loan for 9 years, and since you can afford the repayment amount previously, now and in future.....
i was wondering, just wondering, if you don't have the intention of taking more loan in the near future then just leave the credit score factor out for this scenario ,....

if you don't mind the freeing up of cash flow
A) what if you continue to continue to make the repayment from your pocket, but take that sum of money that was allocated for early settlement and put it into a ROI generating investment. (can try start calculating with 4%pa)

if you do mind about freeing up of cash flow
B) since your loan still have 11 yrs more to go, what if you take out 20% (or 30%) of at sum of money that was allocated for early settlement, and use it to do the monthly repayment and use the balance of 80% (or 70%) of that sum of money that was allocated for early settlement and put it into a ROI generating investment. Repeat that cycle when your 20% (or 30%) of the money are used up.
Btw, my guesstimate, the sum of this 20% will last about >2 yrs monthly repayment amount.

you need to get the "discount' value and compare it to the rate of ROI generating investment....(play with the ROI figures) then see what numbers will be more worthwhile and then evaluate if that investment suits your risk appetite.

the money used for early repayment of 11 yrs, may be more worthy to put into an income generating, if the discount is not great and also you had been charged and paying part of the interest for the next 11yrs, ...
just my thought .....until can get the "discount" value

This post has been edited by yklooi: Nov 19 2021, 10:27 AM

If I do early settlement that money would likely come out of ASB.

Based on phone conversation with bank, I would save around 4k if early settlement by end of this year (will check again in Jan what the rate is) - which is about 10 months of repayment only. not really enticing and doesn't feel worth reducing my ASB's dividend earnings for.

you are saying the loan interest is less than ASB dividend rate? ok WOW. Take more loan then, park it in ASB. What a great time to be alive (for you). Print money.

This post has been edited by lee82gx: Nov 19 2021, 02:41 PM

Personal loans unfortunately calculate based on rule of 78, AKA most of your early years repayment is used to pay off interest, not the actual loan principal.

Which means that by around the halfway point of the tenure, you've paid approximately 70% of the interest charged, while a large chunk of the loan has yet to be paid off.

Since you're very near the halfway point of your loan tenure, your “rebates” / “discounts” from early settlement is going to be extremely low (in fact these early settlement discount/rebate is not true rebates, but actually the amount of interest that you won't be paying if you settle the loan early).

The only solid reason you would want to settle early at this point is if you want to improve credit score and/or the commitment is affecting your monthly cashflow.

Because you're withdrawing from an ASB account rather than using cash on hand, I would advise to simply continue repayment and let the loan run its full tenure, because as you said ASB dividends will be higher than whatever interest you'd have saved.

no la, is the "rebate" that's low 🤣

thanks for this explanation, i learn new thing. Damn. So its a fixed contract with no way to reduce interest? I'm still perplexed, because if we are to return our principal early to the lender doesn't it give them the opportunity to loan it out more quickly?

Either way, I support TS if the final calculation says keep it is more beneficial (Aside from improving credit score).

Functionally speaking, yeah. They earn money from your interest, so it's not like they care much about whether you return principal early. In fact many personal loans often have early settlement fees that discourage people to do exactly that.

Rule of 78 is the standard for conventional HP loans and personal loans in Malaysia, which is why the financially savvy will always say to keep vehicle loans as short as possible (5 years ideally). If you need to take 9 years to comfortably pay off a HP loan you're buying above budget, unless you're a big shot where your company subsidise your loan instalments and gives you tax benefits same logic with personal loans, only take out what you need and take the shortest tenure possible even if that means higher monthly commitments.

It's a predatory way of earning from interest, to the point that some countries have laws against this. Unfortunately Malaysia isn't one of them 😅

This post has been edited by DragonReine: Nov 19 2021, 03:16 PM

Haha most asb loans interest are lower than dividend, so can make some small profits yearly

this explains a lot lol.

Ah well, mistakes to educate others about not to repeat

not to bash you, but before signing the agreement to take the loan I would've assumed you already know what's the progression of the loan, early settlement options etc.

if not, imagine they ask you to slave for another 30 years...die la.

I was 23 and not very financially wise at the time and under a lot of pressure to keep my family afloat.

all i thought at the time was "ok la monthly repayment rm400, i can afford that".

Personal loan marketing and the way they present repayments are not transparent, honestly.

People get lured by the "low" "flat rate interest" and long tenures and "early settlement discounts", not realising that even the absolute lowest personal loan out there for non-government servants "flat rate 3.99%" is effectively 7.29% p.a. interest on top of the money borrowed (assuming tenure for minimum of one year, the effective rate gets lower slightly if tenure is longer but sums wise, the nett MYR paid in interest increases).

So assuming one gets an RM5k loan for one year, you're paying RM200 in interest for just one year tenure.

This on top of the way that early instalments pay interest first and loan later is how many desperate and/or greedy people lured by loans get caught in debt traps.

https://www.moneysense.gov.sg/articles/2018...e-interest-rate



This post has been edited by DragonReine: Nov 19 2021, 07:45 PM

If 200 can solve a problem, is alright to pay. Is never easy to borrow money from people.

PL are collateral free and banks have to take that into consideration to mitigate their loss.

I don’t blame you at all for taking the loan, I’m just a bit confused you dont already know the terms….

We all live and learn. As long as you are alive, and can post words here I assume you are ok!

This post has been edited by lee82gx: Nov 19 2021, 11:07 PM

I don't fault the banks for charging what they did, what I do have a concern with is that many people don't actually understand the terms and don't realise what they're signing up for.

But that's Malaysia market for you ¯\_(ツ)_/¯

Many borrowers are more concern whether they get loan than the terms. If they go to ahlong, is not better.