Few points to share on this. I'm all for taking this ASB Loan.

Reason?

Point 1:
If i save 1k per month, end of the year i have 12k. Dividend i receive will be based on the average balance of the year, approx 6k. Assuming dividend declared of 10%, i will earn RM600.

If i took a loan of 100k, and paid 1k/month, the dividend i receive at the end of the year will be RM10,000. BIG DIFFERENCE!

Point 2:
Despite of taking the loan and having to pay the interest, the extra dividend i receive at the end of year will be able to subsidize the interest i have to pay and in fact still earn me a positive return (7% dvd vs 4%+ interest pay out)

Point 3:
If i take the loan, i can use the dividend to help making my monthly installments once i have received them after the 1st year. (1st year still no dividend so have to pay 100% la). So 2nd year onwards, your monthly is already subsidized in a sense.

Point 4:
If i take the loan, i have to take the ASBRTA (similar to MRTA for housing loan). If anything happen to me, the whole loan will be paid for and my next of kin will benefit. If i save 1k per month and i "kick the bucket" (touch wood), thats the end of the savings. Whatever i have thats it!

How do i know all this? My wife does the ASB loan for one of the banks. So I've done the study for her and this is the outcome. Anyone interested to know more can PM me and i can get my wife to get in touch with you. (Klang Valley only and preferably min 100k loan laa)

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Added on November 11, 2011, 2:28 pmOooo.. on liquidity, you can easily sell off the loan and get whatever that's due back to you, and you still earn dividend on the duration you held the loan.

Hope this helps to address the concerns on emergency funding.

This post has been edited by flattyre: Nov 11 2011, 02:28 PM

Put cash at end of year get 12.6k (based on earlier example)

Take 100k Loan, assume pay 1k per month
end of year get dividend 6k
Sell off the loan to bank. Get back your principal paid (12k - interest of say 5% of 12K =600. Hence net principal 11.4k)
Total you get back = 11.4k + 6k = 17.4k.

Compare Cash @ 12.6k vs Loan @ 17.4k = Difference of 4.8k (thats 38% more than via cash)

All for 1 year work only. Which one better? This can happen because of leveraging. Use money to make money. Of course the bank also earns some income. But so do you.

End of the day the choice is yours. Hence make your decision wisely.

Edit. Sorry. The dividend that you get under the loan is 12k. (asuumption was 10% dividend) Since you took the 100k loan from the beginning, you earn the entire year period worth, and not prorated like under cash. Hence total return is actually higher than example shown above. My apologies for understating the benefits


This post has been edited by flattyre: Nov 11 2011, 03:21 PM

Of course in terms of liquidity, cash is king. I believe for the loan maybe take 2 to 3 months to encash. In meantime, can use the dividends & advance with CC or borrow from Ah Long .

For ASB loan, be careful of which bank you take from as some has early exit penalty and some do not when you decide to sell back the loan.

Hence be wise and know what you're getting into!

+1

Exactly the point. You get back the money at the end of the period. Not that the bank keeps the 100k. That would be daylight robbery!!

In short, the dividend is almost sufficient to cover the loan, and you only need to pay minimal in total.